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Use ‘Em or Lose ‘Em: 5 Tax Breaks Set to Expire This Year

By BarbaraWeltman, Guest Blogger
Published: October 24, 2013

Dozens of federal tax breaks are scheduled to end on December 31 unless Congress extends them. No one knows for sure which ones, if any, will apply next year, so business owners should explore expiring rules and take advantage of them while they can. Here are some expiring breaks that may appeal to you:

Break 1: Faster write-offs for buying needed equipment

Need to upgrade your computers? Provide staff with tablets and smartphones? Add new machinery? You have two better ways to deduct your costs this year than merely depreciating the costs over a number of years:

  • Deduct up to $500,000 of the cost of qualified equipment (whether new or pre-owned) this year as long as you’re profitable. Next year, the deduction limit is scheduled to be $25,000.
  • Deduct 50% of the cost of new qualified equipment, even if it adds to or creates a business loss. Next year, this deduction is set to disappear entirely.

Note: You can use either break even if you finance your purchase in whole or in part.

Break 2: Faster write-offs for improving your facilities

Usually when you make capital improvements to your workspace, the cost can only be depreciated over a period of 39 years. However, for improvements to leaseholds (by the lessor, lessee, or subleasee), restaurants, and retail establishments, you can use any or all of the following rules as long as the improvements are completed before the end of this year:

  • $250,000 first-year expensing for eligible improvements
  • 50% bonus depreciation for eligible improvements
  • 15-year amortization period for any costs not deducted with first-year expensing or bonus depreciation

Find details about write-offs for qualified property in IRS Publication 946.

Break 3: Tax credits for hiring certain workers

If you need more employees on your payroll and have projected the cost of this hiring after factoring in future health care obligations, think about hiring from certain targeted groups. Doing this may entitle you to a tax credit that can be used to offset your tax bill:

  • Work opportunity credit for hiring certain disadvantaged workers, including certain veterans. Make sure that you timely submit IRS Form 8850 to your state work force agency to get eligible workers certified as entitling you to the credit.
  • Indian employment credit if you hire an enrolled member, or spouse of an enrolled member, of an Indian tribe who performs services within an Indian reservation.
  • Empowerment employment credit if your business is located within a federally-designated empowerment zone.

The amount of each credit and eligibility rules vary, but each requires that you hire an eligible employee before the end of this year.

Break 4: Exclusion for gain on certain stock

If your business is a C corporation involved in technology, manufacturing, retail, or wholesale and is seeking new investors, consider issuing new stock before the end of the year. If the stock meets the definition of qualified small business stock and investors hold it for more than five years, then all of their gain will be tax free. Stock issued next year will give investors only a 50% exclusion for their gain unless the current 100% exclusion is extended.

Note: You can issue qualified small business stock to employees as payment for services (i.e., year-end bonuses) to enable them to reap tax-free returns.

Break 5: Tax credit for doing research

If your company does research to create a new product, you may be eligible for a tax credit of up to 20% of increased research expenses. This credit is set to expire at the end of this year unless Congress extends it. While an extension is probable—the research credit has been extended 14 times since its inception in 1981—it’s still smart to use the credit while you can.

The credit is not limited to research to create products for sale. It also applies to research for internal processes (e.g., internal use software) that improve your business operations. For more details see the instructions to IRS Form 6765.

Conclusion

A bi-partisan Congressional budget committee is supposed to decide by December 13, 2013, what measures (including tax rules) will apply for the future. By that time, it may be too late for certain actions that would otherwise be helpful for your business and tax savings this year. Meet with your tax advisor to explore which of these or other expiring tax breaks you may want to use before the end of the year, and what steps you need to take to nail them down now.

About the Author:

BarbaraWeltman
Barbara Weltman

Guest Blogger

Barbara Weltman is an attorney, prolific author with such titles as J.K. Lasser's Small Business Taxes, J.K. Lasser's Guide to Self-Employment, and Smooth Failing as well as a trusted professional advocate for small businesses and entrepreneurs. She is also the publisher of Idea of the Day® and monthly e-newsletter Big Ideas for Small Business® and host of Build Your Business Radio. She has been included in the List of 100 Small Business Influencers for three years in a row. Follow her on Twitter: @BigIdeas4SB or at www.BigIdeasforSmallBusiness.com

Rewarding Employees with Company Stock

By BarbaraWeltman, Guest Blogger
Published: September 26, 2013

If your business is incorporated and you want to reward employees, consider issuing stock. Using this form of compensation has benefits to employees and to you.

Company perspective

If you pay a cash bonus or give a fringe benefit, it’s a cash drain to the company. Issuing stock as compensation is not. You merely issue shares to the employee equal to the bonus, reward, or compensation you intend.

Company stock can come with restrictions on stock transfers or substantial risk of forfeiture that effectively tie employees to you. For example, there may be a time frame (say five years) before the risk of forfeiture expires and the employee is fully “vested” in the shares so that he or she can sell them at that time. With a closely-held business, other restrictions may continue, such as a requirement to first offer the shares to the corporation before selling them to an outsider.

For most fringe benefit plans, strict nondiscrimination rules apply to prevent you from selectively rewarding employees. This does not apply to giving stock to employees; you can choose who to reward and how much the reward will be.

This form of compensation is subject to payroll taxes. This means you must pay the employer share of FICA as well as FUTA taxes on the value of the shares issued to an employee.

Giving stock to employees is likely to raise their company loyalty. As a stockholder, they have skin in the game and should want more than ever to see the company succeed.

Employee perspective

Stock issued to employees is a form of compensation that’s taxable to them. When and how they are taxed depends on certain factors. If the stock is restricted or subject to substantial risk of forfeiture, there is no immediate tax required. Tax results when there is no longer any substantial risk of forfeiture or the shares are freely transferable. At that time, the value of the shares is taxed as ordinary income. It’s up to the company to set the value.

However, the employee can make a Sec. 83(b) election to report the compensation now, which allows all future appreciation to be taxed as capital gains rather than as ordinary income. The election must be made no later than 30 days after the date that the stock is transferred to the employee by filing it in the IRS service center (it’s not filed with the employee’s tax return but should be attached to the return). The IRS has a sample election that you can give employees to use for making an election. There is a risk in making this election. The employee cannot recoup any income tax paid when the stock is received if he or she leaves the company before shares have vested so that the shares are lost to this employee; no loss is allowed.

If you issue qualified small business stock before January 1, 2014, and the employee holds it for more than five years, all capital gain becomes tax free. After this year, the exclusion for qualified small business stock declines from 100% to 50% unless Congress extends the current break. Qualified small business stock has specific limitations: the industry you’re in, being a C corporation (not an S corporation), having assets of $50 million or less, and more. Find more details about qualified small business stock in IRS Publication 550.

Final thoughts

Before you issue stock as compensation to employees, consider carefully what this means to the dilution of your ownership interests. Work closely with an attorney to craft a stock plan that works for your situation.

About the Author:

BarbaraWeltman
Barbara Weltman

Guest Blogger

Barbara Weltman is an attorney, prolific author with such titles as J.K. Lasser's Small Business Taxes, J.K. Lasser's Guide to Self-Employment, and Smooth Failing as well as a trusted professional advocate for small businesses and entrepreneurs. She is also the publisher of Idea of the Day® and monthly e-newsletter Big Ideas for Small Business® and host of Build Your Business Radio. She has been included in the List of 100 Small Business Influencers for three years in a row. Follow her on Twitter: @BigIdeas4SB or at www.BigIdeasforSmallBusiness.com

5 Ways to Start a Business Plan

By Tim Berry, Guest Blogger
Published: September 25, 2013

How do you get started on a business plan? It depends on who you are, what you like, what you do well and how you think. People are all different. I say think of a business plan as a collection of components or modules, and start wherever you feel like it. Here are five specific suggestions, based on the idea that people should start with what’s best for the individual, depending on style. Which one is best for you?

1. Do a SWOT analysis. That’s a collection of thoughts organized into four categories: strengths, weaknesses, opportunities and threats. Ideally you gather a small group of people together for just an hour or two, you have somewhere to write out thoughts into bullet points. This YouTube video on SWOT gives a simple example. The SWOT almost always leads to simple, practical strategy.

It’s really hard to do a SWOT without thinking about how to focus on strengths, work around weaknesses, seize opportunities and avoid threats. Everybody does that.

2. Do a simple sales forecast. Do it for a few months at the very least, ideally 12 months by month and two more years just annually. Break your forecast into units, average revenue per unit, sales, average cost per unit and costs. The math is simple. Sales is units times revenue. Costs are units times average cost per unit. Here’s how to do a forecast for a new product. And here are some general tips on doing a sales forecast.

What happens to most people is that thinking through the details of the sales forecast gets you into business planning. You can’t help thinking about prices, costs, target markets, strategy and focus. I believe that somebody who manages with a sales forecast, and does plan vs. actual results analysis every month, has a business plan. Even if they do nothing else.

3. Do the big picture in a vision statement, mission statement or mantra. The mission statement is about what your business does for the customer, the employee, and the owner. The vision statement is a view of what you want the business to be three years from now. And a mantra is a simple sentence summary. For more on those, here’s a link to how to do mission, vision, and mantra.

Try to avoid simple hype. Test yourself: does this describe my business is a way that it would rule out any of my competitors? Would a customer read this and identify my business with it? Is this what one customer would tell another about your business?

4. Develop your core market story. Invent an ideal buyer and tell yourself the story of how the buyer identifies a problem, or something he or she wants, searches for it, and finds your business. Make the story an explanation of what the problem was and how your business solved it. For more on this, try every business needs a market-defining story.

5. Talk to 10 customers. I’m always amazed at how much business thinking comes out of the simple process of talking to real people about your real business. Do it right: Find people willing to talk to you and take some time with them. Start by making sure they don’t think they are supposed to tell you what you want to hear, but rather, the truth.

Any one of these five first steps might be right for you. All of them can help you get going, and they are all good steps to take regardless of what follows.

About the Author:

Tim Berry
Tim Berry

Guest Blogger

Founder and Chairman of Palo Alto Software and bplans.com, on twitter as Timberry, blogging at timberry.bplans.com. His collected posts are at blog.timberry.com. Stanford MBA. Married 46 years, father of 5. Author of business plan software Business Plan Pro and www.liveplan.com and books including his latest, 'Lean Business Planning,' 2015, Motivational Press. Contents of that book are available for web browsing free at leanplan.com .

5 Steps to Help You Decide What Salary to Pay Your Employees

By Caron_Beesley, Contributor
Published: September 23, 2013 Updated: September 15, 2016

If you’re a growing small business and need help, there are a number of non-employee options available to help you staff your business (explained here), but if you do choose to move forward with part- or full-time employees, what should you pay them?

The general rule of thumb is to pay a salary based on experience, location and the available talent pool. But how do you bring all these factors together and come up with a number that potential candidates will find attractive (and you can afford)?

In this quick online video, Brad Farris, a small business advisor and managing editor of EnMast.com (a service of Anchor Advisors, Ltd., a Chicago small business consulting firm), offers some useful tips for helping find a solid pay range to advertise your job and attract strong candidate pools.

Here’s what he recommends:

Have a solid job description

If you don’t know what you’re looking for, it’s going to be really hard to find it. In particular, when you’re looking at pricing a job there is often a wide range of jobs that have the same title. So you need to be really specific about the range of duties and responsibilities of the job.

The problem for many small businesses, as Farris explains, is that they are often piecing together jobs based on the work that needs to be done in the organization, which means that these job descriptions are often for jobs that don’t exist in the real world – which makes it hard to figure out what that job is worth. Farris suggests trying to build a job description that aligns as closely as possible with what other organizations advertise (search online for job description templates). This will make it easier to price the job.

Look around – What is the industry paying for that job?

Do an online search for the job you’re looking to create to try and gauge how the market is pricing that job. For example, search for “social media and content management specialist salary range.” Then narrow your search to your region or city: “social media and content management specialist salary range Boston.” What you’re looking for are local guides or salary surveys that can help you better understand the market for this job in your area.

Next, search trade magazines or sites potential candidates might visit. These often publish their own salary surveys.

Ask around – talk to other business owners what they pay for jobs like the one you’re trying to hire for. Try to compare apples to apples, so get into the specifics of the duties involved.

Conduct advanced searches on job sites

Even after completing this type of research, you may just find you still haven’t found the market guide price that fits your job description. One way to drill down a little more is to query online job sites like CareerBuilder, Monster or Jobs.com. Using the advanced search tool, you can really drill down into specific job keywords, categories, (exclude location for now, you’ll come back to that later) that match your needs – and if you can, exclude jobs that don’t show salary information in your search. Your search results will give you a good picture of the current market – what employees are paying, right now, for jobs like yours. Browse the results and search for the job descriptions that best match yours; print these out and narrow down your list to the ones that are the closest. What you should see start to emerge is a salary range – some jobs may have more responsibility, some less – but keep that range in mind.

Do a cost of living comparison

Farris next recommends using a salary relocation calculator (easily found online) to further narrow your search. So, say your printed list of comparable job descriptions includes a good fit but is for a job based across the other side of the country. The cost of living calculator will give you a good indication of what an equivalent job commands in salary in your city or neighborhood, further narrowing the salary range that you had earlier.

Advertise a salary range

Instead of picking a number and sticking with it, Farris recommends keeping that narrowed down salary range in mind, and even including it in your job advertisement (for example, “salary range - $25-30,000 commensurate with experience). Then take a look at some candidates at both the low and high end of the range. Ask yourself if you’d be able to pay $5,000 more to get a candidate with greater skill or experience. If you don’t see the value, then go ahead and hire them at the low end of the range.

The key is to remember that having a salary range gives you the flexibility to bring in a solid pool of talent; then assess individually where they are against the market.

Related Blogs

About the Author:

Caron_Beesley
Caron Beesley

Contributor

Caron Beesley is a small business owner, a writer, and marketing communications consultant. Caron works with the SBA.gov team to promote essential government resources that help entrepreneurs and small business owners start-up, grow and succeed. Follow Caron on Twitter: @caronbeesley

Is It Time to End Your Business Partnership? Here's How

By Caron_Beesley, Contributor
Published: September 16, 2013 Updated: September 16, 2013

Partnerships fail for many reasons. Misalignment of personality is possibly the first reason that springs to mind, but according to Michigan law firm Family & Aging Law Center , the two most common reasons that business partnerships fail is 1) failure to make an adequate plan, and 2) more importantly, from a legal perspective, failure to have a written partnership agreement that outlines in detail the partnership structure.

Why is the partnership agreement so important? Most partnership agreements are written up at the beginning of the business venture and outline how the partners will run the business – how business decisions are made, how responsibilities are divided, how disagreements will be resolved and so forth. A good one will also include a dissolution strategy, like a prenuptial agreement. Although not required by law, it can be extremely risky to operate without one. Essentially, a good agreement brings structure and agreement to the partnership – without one, partnerships run the risk of being run like separate businesses within the business, with each partner doing (or not doing) their own thing!

Without a partnership agreement, dissolving a partnership can get nasty and carry a lot of risk. For example, if a partner isn’t paying bills on time or making regular contributions to pay off a business loan. Lapses and disagreements like these can quickly spiral out of control and impact your creditworthiness, relationships with vendors and so on.

Even if you do have a partnership agreement, you are carrying an element of shared liability. Each partner is liable for the actions of the business, its debts, and of course, you also have to split profits.

So what are your options when it comes to dissolving a partnership that’s gone bad? Here are some considerations to bear in mind for those who have partnership agreements and those who don’t:

  1. Change the weighting of the partnership agreement

You don’t have to dissolve the partnership entirely. Perhaps you might change the weighting of the partnership so that you assume a majority share and with it more control over decisions and/or finances, while your partner agrees to remain involved, but to a lesser extent than currently.

  1. Buy out your partner or sell your share

If you want to continue the business, you could buy your partner’s share, or sell yours if you want out but your partner doesn’t.

  1. Legally dissolve the partnership

If you have a partnership agreement, revisit it and review your dissolution plan. Then take a look at the current state of your business to ensure a clean break. For example, have all partners completed all agreed duties? What’s your business worth (use a third party valuation firm to help pinpoint this number)? What about leases, loans, and other contracts – how will the dissolution affect them and who will own the continued liability?

As you can see, there are many considerations, so make sure you consult a lawyer to help protect your interests in any dissolution or restructuring of the partnership. They can also help draft a dissolution agreement that protects you from future disputes or claims that may be brought against you.

It’s also important to note that any dissolution of that partnership is governed by state law. Visit your state’s website for more information about the process and the forms you’ll need. It can take up to 90 days for the dissolution to become official. Once your partnership is dissolved, you can typically expect each partner to assume business assets and liabilities based on percentage of ownership.

  1. When there’s no partnership agreement

If you didn’t have a partnership agreement that outlined a dissolution strategy, try to work out terms together. If not, an intermediary may be able to help you resolve your dispute through mediation. Many law firms offer these services. Your final resort is a court-dictated decision which could be costly and may not provide the result you were looking for. Courts often divide assets and liabilities 50-50 regardless of any disputes.

Other factors to consider

Don’t forget to let the IRS and state revenue office know that you are no longer in partnership the next time you file a return. Notify customers, vendors and others that your business structure has changed or dissolved. You’ll also need to take care of other loose ends such as business licenses, permits and canceling a trade name or “doing business as” name with your local government. Refer to SBA’s Closing Your Business guide for more information.

About the Author:

Caron_Beesley
Caron Beesley

Contributor

Caron Beesley is a small business owner, a writer, and marketing communications consultant. Caron works with the SBA.gov team to promote essential government resources that help entrepreneurs and small business owners start-up, grow and succeed. Follow Caron on Twitter: @caronbeesley

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