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Business Succession Planning Buy-Sell Agreements

Summary: A buy-sell agreement is a legally binding contract in which the owners of a business set forth the terms and conditions of a future sale or buy back of a departing owner's share of the business. Specifically, buy-sells control when owners can sell their interests, who can buy an owner's interest, and at what price. Buy-sells can accomplish many objectives, but are primarily used to ensure the smooth continuation of a business after a potentially disruptive event, such as an owner's retirement, incapacity, or death. Also valuable estate planning tools, buy-sells can provide for the orderly succession of a family business, and for the liquidity needed for payment of a deceased owner's estate settlement costs and taxes. Further, if structured properly, a buy-sell can establish the purchase price as the taxable value of an owner's business interest, avoiding unexpected estate tax consequences at the owner's death. What is a buy-sell agreement? Buy-sell agreements ...

Business Assets: Lease Versus Buy

What are business assets, and how do you decide whether to lease or buy them? In the context of the lease versus buy decision, "business assets" refers to fixed assets (such as buildings, machinery, and office equipment) that can usually be depreciated over time. Because these fixed assets are necessary to the operation of most businesses, a question often arises as to whether the business owner should purchase the assets outright or lease them from another party. There are advantages and disadvantages to both leasing and buying. Therefore, your decision should be an informed one, based on the needs of your business and your own preferences. What is depreciation, and how can it influence your decision to lease or buy business assets? The IRS assumes that certain tangible business property will decline in value over time due to wear and tear, exhaustion, or obsolescence. Consequently, each year, a portion of the property's value is subtracted (i.e., taken as an expense), based on how l ...

Using a Buy-Sell Agreement when Selling Your Business to Family

What is a buy-sell agreement? A buy-sell agreement is a legal contract common in closely held businesses. It is an agreement you can enter into now that provides for the future sale of your business interest. A buy-sell agreement is also referred to as a business continuation agreement, a stock purchase agreement, or a buyout agreement. When carefully drafted, your buy-sell agreement may be used to set the taxable value of your business interest. Does it matter if your buy-sell agreement is with a family member? The IRS tends to scrutinize transactions between related parties, so almost any business transaction between you and a family member could be subject to the attention of the IRS. The definition of family member includes your spouse; parents of you and your spouse plus their lineal descendants, including spouses; and any other "natural objects of the transferor's bounty." There are rules in effect that can make the sale of an interest in a family business seem more difficult. H ...

Tax Consequences of Business Distributions

What are the tax consequences of business distributions? A business can distribute cash or property to its owners. The tax consequences of the distribution to the owner will depend on the type of business entity that is involved. Distributions are sometimes included in the taxable income of the owner and sometimes not. Additionally, it is important to understand the impact of a distribution on an owner's tax basis. Although myriad business entities exist, the following types will be discussed here: C corporations, S corporations, partnerships, sole proprietorships, limited liability companies (LLCs), limited liability partnerships (LLPs), limited partnerships (LPs), and professional corporations (PCs). Impact on specific business entities Tax treatment will vary, depending on the type of business entity you select. C corporations C corporations may distribute money or property to shareholders. The method used to make a corporate distribution will determine the tax consequences of the withd ...

Starting or Buying a Business

Planning for your own business Before you start your own business or buy an existing business, you should do some initial planning. You may have already decided what type of business you want--your own restaurant, retail outlet, service, or manufacturing plant. You need to choose a suitable location--can you work from home, or do you need a separate facility? You should assess your financial requirements, schedule daily activities, and plan for contingencies, which may be included in your business plan. Planning your business usually requires the help of any number of professionals--an attorney or accountant, for example. The success or failure of your business may depend on your initial planning, but how do you plan and what do you plan for? Factors to consider when starting your own business Legal structure You will have to decide upon the legal structure of your business. For example, will you conduct business as a sole proprietor, or will you instead create an entity separate from yourself, ...

Retirement Plans for Small Businesses

If you're self-employed or own a small business and you haven't established a retirement savings plan, what are you waiting for? A retirement plan can help you and your employees save for the future. Tax advantages A retirement plan can have significant tax advantages: Your contributions are deductible when made Your contributions aren't taxed to an employee until distributed from the plan Money in the retirement program grows tax deferred (or, in the case of Roth accounts, potentially tax free) Types of plans Retirement plans are usually either IRA-based (like SEPs and SIMPLE IRAs) or "qualified" (like 401(k)s, profit-sharing plans, and defined benefit plans). Qualified plans are generally more complicated and expensive to maintain than IRA-based plans because they have to comply with specific Internal Revenue Code and ERISA (the Employee Retirement Income Security Act of 1974) requirements in order to qualify for their tax benefits. Also, qualified plan assets ...

Private Family Foundations

Summary: A private family foundation is a legal entity created, funded, and operated by a single family for the primary purpose of making grants to charities. Because of its charitable mission, a private family foundation is given tax-exempt status, like a public charity, and contributions to the foundation by family members are tax deductible, but to a lesser extent than contributions to a public charity. Private family foundations are typically founded by high net worth individuals and families who want to maintain a high degree of control over their charitable legacies, and are willing to assume significant costs and responsibilities, and adhere to strict rules and requirements. Typically, private family foundations are named to honor the founders (e.g., the Ford Foundation), and their charitable grant programs continue for many years after their founders' deaths. What is a private family foundation? Defined for tax purposes, a private family foundation is a charitable organization that ...

Same Day ACH Expansion Capabilities Are Finally Here

In an effort to work toward the adoption of faster electronic payments, the National Automated Clearinghouse Association (NACHA) began the rollout of Same Day ACH (Automated Clearing House) capabilities last year. In September 2016, phase one of three for Same Day ACH service was implemented by starting with credits only. As you may know, there are two basic types of ACH transactions, including credits (allowing money to be pushed) and debits (allowing money to be pulled). As expected, missed payroll deadlines, late vendor payments, and time-sensitive or discounted invoices appeared to be the primary reasons for the use of Same Day ACH payments. According to the NACHA, the same day service from September 23 to December 31, 2016, determined that almost $17 billion was transferred by Same Day ACH, representing more than $13 million in transactions. In fact, over 52% of those payments were direct deposits (business to consumer). Expanding Same Day ACH service to include ACH debits, also known as phase two, ...

Seven Ways to Make Your Emails Appealing to Millennials

According to conventional wisdom, millennials aren't interested in email. They're so preoccupied with social media and text messaging that, for them, email is obsolete. This is, however, one of those generalizations that's far from the truth. The reality is that millennials like to communicate using a variety of platforms and devices, including email. True, young, tech-savvy people spend many hours per day on their phones. But one thing they also do on their phones is read and send email. While millennials haven't stopped using email, you do need to keep certain things in mind if you want to capture their attention. One thing that's true is that outdated email marketing tactics won't get you very far with this audience. Let's look at some tips for making your emails relevant to millennials. 1. Assume they're using smartphones. A recent study revealed that, for 90% of 18-24 year-olds, smartphones are the most popular d ...

How to Exceed Customer Expectations and Keep Them Coming Back

Customer expectations can be difficult to live up to, especially as the global marketplace has provided consumers with more choices than ever. Customers are always looking for a cheaper deal, better features and more benefits, making it difficult for many businesses to keep up with the demands of their customers. If you're worried about getting left behind in a global marketplace, finding ways to exceed your customer's expectations can put you way ahead of the competition. Focus on One Key Area The key to exceeding customer expectations is to focus on one key area and aim to be better than your competitors in your chosen area. Businesses often spread their resources too thin by trying to be the best in all areas of their operations, but this rarely works and is unsustainable, particularly for small or medium-sized companies.  Start by separating the attributes of your product into three or four areas that can be easily defined. For example, if you sell dog food, ...

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