Wednesday, August 29, 2012

Website Ranking is Changing: What's changing? How do you protect your rank?

Google has again changed the way its search engine ranks websites in an effort to counteract sites suspected of boosting their ratings by dubious means. When this change took effect, many small business operators, innocent of such tactics, found their websites way down in the rankings. Constant tweaks to the way search engines rank websites on the Internet is especially bothersome to small business owners, who don’t have technology departments to monitor and address such issues quickly. Often entrepreneurs only discover they have a problem when they see that their web traffic is down significantly or when sales nosedive.

It has been estimated that Google makes about 500 adjustments to its search engine algorithm every year. If you’ve escaped any consequences so far, you still might face them in the near future. Here are some ideas to protect your website rankings.

Disaster Preparedness

With Hurricane Issac pounding on the Louisiana coast, I though it might be a good time to bring up the topic of disaster preparedness. This is not a complete article, but rather a few thoughts that came to my mind thinking back to how our firm could have done better when we were faced with a severe ice storm a few years back.

What is the company's communication plan? Have a plan to communicate to employees and customers/clients in place before the event occurs. In our case, we didn't have a formal list of employees to call and contact. After the storm hit, it was too late to pull this together. We are completely reliant on systems in the cloud today, all the more reason to keep a list of immediate contact information on paper so that you can make the calls/texts etc. when faced with a disaster.

Similar circumstances for customers/clients. When we were hit with the ice storm, we didn't have good contact with a few clients that were dependent on us to process payrolls. As a result, one client determined they could go back to processing their own payroll. Part of those calls to employees should include assigning customer/client contact for them in preparation for the disaster. Had we assigned employees to call those clients affected by the disaster, we might not have lost that one client. Make sure employees are trained in what to say and discuss, show compassion and assure the customer/client that the interrupted services will be restored as soon as possible. Keep the customer/client informed of any changes in that status.

What's the company's work policy? Many of our employees live in rural settings. They are often affected earlier and longer than those of us that live near to the offices. Since our software is almost completely in the cloud, it gives us flexibility on where we can work from. But a natural disaster throws that flexibility out of the window. I want to stress here that employee well being is the top concern. Don't ask your employees to leave a safe location to get to an internet connection. However, if you are dependent on the cloud, you should consider having a mobilization plan to move a few employees and possibly their families outside of the affected area before the storm hits. Have areas to the north, south, east and west identified that you can move your team to in the event of a disaster and a list of things that you need to have to stock that remote location. In our case, having a few laptops, a printer and an internet connection puts us up in business at a remote location in a matter of hours.

I'm sure that there are a lot of other things to consider, but perhaps this will get you thinking about preparing for that unknown disaster.

Tuesday, August 28, 2012

TIP: Tax-Savvy Ways to Help Pay for Grandkids' College Expenses

There’s more than one way to help pay a grandchild’s college expenses, and all of them come with tax benefits. Here’s a run through of some options. As always, consult your professional tax advisor to identify what’s best for your situation.
Direct Tuition Payment to the College
Perhaps the simplest strategy – making direct payments to the college – reduces your taxable estate but does not reduce your federal gift and estate tax exemption. You are allowed to make gifts of any amount provided they are used to pay for tuition only – not room and board or any other expenses. This doesn’t mean you can’t give your grandchild additional funds up to the gift exclusion amount (currently $13,000 annually) to help with living expenses. If you are married, the annual tax exclusion doubles to $26,000.

529 College Savings Accounts
These have been around for awhile and offer multiple tax advantages benefiting both the contributor (you) and the student beneficiary (your grandchild). Contributions are allowed to accrue earnings free of federal income taxes, and the grandchild is allowed to withdraw tax-free funds to cover college education expenses. Contributors to their grandchild’s 529 accounts receive tax breaks because contributions are eligible for the annual gift tax exclusion ($13,000). Contributions that stay within the exclusion amount will not adversely affect the contributor’s gift and estate tax exemption. Many states offer deductions or credits for contributions to state endorsed/sponsored 529 plans, making these accounts even more tax efficient. There are other possibilities for larger lump sum contributions to 529 accounts. If this is something you want to explore, your tax expert can explain the tax benefits and other ramifications.

Coverdell Education Savings Accounts

This option allows you to make a contribution annually of up to $2,000 to a Coverdell Education Savings Account (CESA) for a grandchild who is not yet 18 years old. A CESA may be set up by any responsible person to serve exclusively as a means to save for college for a designated account beneficiary. You can set up as many CESA accounts as you want for each of your grandkids. CESA accounts are allowed to earn interest free of federal income tax, and the student beneficiary is allowed to make tax-free withdrawals to pay for tuition, books, supplies, and room and board.

There are some restrictions. Only individuals with a modified adjusted gross income of less than $110,000 (or $220,000 for married joint filers) can set up CESA contributions for their grandkids. Contribution limits may be reduced for incomes between $95,000 and $110,000 ($190,000 and $220,000 jointly). It is perfectly legal to get around the income ceiling by enlisting a responsible person – perhaps the parent of one of your grandkids – to set up the CESA account and to make the contribution on behalf of the child. If you do this, you must trust the person completely because you will have no control over the CESA account going forward.

The above are just some of the options available to grandparents who want to help out with the cost of educating their grandchildren. Please talk to your professional tax advisor for more information on gift tax exclusions and how to find the best tax-smart ways to support your grandchild’s ambitions.

Saturday, August 25, 2012

How to Structure a Key Employee Life Insurance Policy

In most cases, a business will purchase life insurance as the owner of record and named beneficiary to receive proceeds upon the death of the key employee. This means the business would also have access to the contract’s cash value, which can be used for any purpose, including taking out a loan against the policy. 

Policy premiums are not tax deductible, but death proceeds are income tax free as long as the policy meets the requirements of IRC 101(j) for employer-owned life insurance, which requires a signed notice and consent form. Also note that in the case of a C corporation, life insurance proceeds could be subject to Alternative Minimum Tax.

Bear in mind that should the key employee live to retirement, the business has the option to use the policy’s cash value to fund a nonqualified deferred compensation plan. The loss of certain employees could be devastating for a small business.

It’s important to consider key employee insurance as part of your company’s overall risk-management plan to help minimize the potential expense and disruption that would be caused by the loss of a key employee.

Friday, August 24, 2012

How Much is a Key Employee Worth?

One of the toughest tasks is to determine how much a key employee is worth in terms of dollar value to your business. You should consider what steps you would need to take if that worker died today and assign a monetary amount to each task. For example:
  • Any revenues lost because less experienced employees must step in to complete the key employee’s job;
  • Lost business opportunities, suppliers or customers;
  • Loss of bank credit or the possibility of any loans that might become due if a key employee dies;
  • The cost of any sort of campaign or communication that must be launched to ensure both employees and customers that the business will survive the loss of that person;
  • The expense of hiring and training a new worker to replace the key employee;
  • The cost of engaging the time and skills of other workers, such as human resources, hiring managers and administrative clerks to recruit, hire and train a replacement to get up to speed;
  • Assistance to the family of a key employee to offset economic loss;
  • Funds necessary should the business be continued, sold or liquidated upon the death of the key employee.
Even if you are able to hire a new employee in a timely fashion, it could take years to replace the skills, knowledge and talents of the deceased worker, which could impact business revenues or cause more expense.

There are several different strategies a business can use to determine the face value of a key employee life insurance policy it needs to purchase. You can calculate the dollar amount the employee contributes to profits each year and multiply it by a factor, such as the number of years it would take for another employee to replicate that value to the business. You could multiply the key employee’s salary by as much as three to 10 times – including the cost of fringe benefits and any periodic raises that employee would have received in bonuses and/or cost of living increases. You should also include the business expenses outlined above in determining the value of a key employee life insurance policy.

Come back to see our next article on structuring key employee life insurance. and visit our website at for more tax and accounting insights.

Wednesday, August 22, 2012

Key Employee Insurance: Protect Your Business by Insuring Key Employees

How much of your business depends on the knowledge and talents of a small group of people – or even just one person? In a private professional practice, such as that of a doctor or attorney, the firm could fold altogether if something were to happen to that single key employee. Other key employees might include executives, managers, a salesperson or even a shareholder who is actively involved in the business.
If there is a key employee in your company, you might want to consider the repercussions if that person were to pass away suddenly. A business can take out a key employee insurance policy (formerly referred to as key-man insurance) to cover any losses due to the death of that person.

Find out more on valuing and structuring key employee life insurance at

Monday, August 20, 2012

Health Care Tax Credit a Major Pain for Small Businesses

Critics say a tax break designed to help small businesses pay for employee health coverage is too confusing and may be too small to attract many claims.
According to a report released last month by the Government Accountability Office, only a fraction of eligible companies had filed for the Small Employer Health Tax Credit, a provision of the Affordable Care Act, also known as Obamacare.

To qualify for the credit, companies must have 25 or fewer workers, pay average salaries of $50,000 or less and cover at least half of their employees’ health insurance premiums.

Gathering, processing and reporting the information needed to establish eligibility has proven to be a major headache, not only for businesses seeking the credit but also for their accountants.

Tax preparers interviewed by the GAO said it could take as long as eight hours simply to collect the necessary data and another three to five hours to run the numbers.

Many of the finance professionals responding to the GAO study said they were confused and frustrated by the complicated formula for calculating the number of full-time equivalent employees, or FTEs, and their associated health care costs. In one step of the process, for example, seasonal workers are excluded from the FTE total, but their health care premiums are still applied to the employer’s credit.

In addition, as the GAO report notes, companies filing for the credit are penalized if they pay more than the average premium for their state. For example, the Department of Health and Human Services has determined that the average health insurance payout for the state of Alabama is $4,441; therefore, that is the most that an employer can claim against the credit even if that particular company pays higher premiums to provide better coverage.
As the incentive is currently structured, companies could also lose some federal assistance if they choose to insure additional employees.

Overall, determining eligibility for the tax credit requires 15 separate calculations, including 11 that involve seven different worksheets.

One tax professional reported to the GAO that “(Small business owners) are trying to run their businesses and operate and make a profit, and when you tell them that they need to take two, three, or four hours just to gather this information, some shake their heads and say ‘No, I’m not going to do it.’ ”Considering the arduous filing procedure, the GAO concludes that the tax credit is “not large enough to incentivize employers to begin offering insurance.”

In 2010, the year covered by the GAO report, the average tax credit awarded through the initiative was just $2,700.
Based on GAO estimates and other sources, between 1.4 million and 4 million small businesses were eligible to apply for the credit in 2010 but only 170,300 claims were filed. And as the GAO report notes, less than one in five companies applying for the credit – 17 percent – were eligible to claim the full credit amount. Because the program has been so underutilized, an estimated $20 billion earmarked for the tax credit has gone unclaimed.

Republicans have been quick to seize on the apparent failure of the Small Employer Health Tax Credit in their continuing campaign against the entire Affordable Health Care Act, which was enacted in 2010 and recently upheld in a controversial split decision by the U.S. Supreme Court. But even some Democrats, including the president, have said the incentive needs to be simplified and expanded.

The GAO suggests that the IRS should simplify the filing process and work more closely with small businesses that want to claim the credit, including taking a “soft” approach to companies that submit incorrect or incomplete paperwork. But the agency stops short of recommending more money be made available. “Changing the credit to expand eligibility or make it more generous would increase the revenue loss to the federal government,” states the report. Responding to the GAO report, the IRS has agreed to review both its filing and review procedures and to increase its outreach to small businesses that might be eligible to receive assistance through the program.

It seems likely that any substantive changes to the Small Employer Health Tax Credit will have to wait until after the November elections. If the program is revived next year, small businesses should consult with a trusted financial adviser to conduct a full cost/benefit analysis before applying.

Human resources are typically an organization’s biggest expense, and potentially its greatest asset. Providing cost-effective health care coverage could help small businesses recruit and retain highly skilled and motivated employees, leading to greater productivity and profitability.

Unfortunately, it remains unclear whether the Small Employer Health Tax Credit will be a boon or a boondoggle.

Friday, August 17, 2012

What Happens If I Don't Pay My Taxes?

According to the IRS, taxpayers are required to file an income tax return “for any year in which a filing requirement exists,” based on factors such as age, filing status and income. Even when a return is not required, there are often compelling reasons to file anyway, such as the possibility of getting a refund. Still, every year many people do not file a tax return even when the IRS considers it mandatory.

The IRS investigates close to 1 million nonfiler situations each year. Their agents provide many warnings throughout the process, and it is almost never too late to try to work with them. When the IRS determines that you were required to file and did not, they send several letters encouraging you to file and warning of possible consequences. Even a late return is better than no return at all. After about a year, the IRS will prepare a Substitute for Return, sometimes referred to as a Ghost Return. This tax return will include all of your income with no deductions for exemptions or expenses. The IRS will use this to compute your tax liability, including penalties and interest. Since the substitute return is so unfavorable to the taxpayer, the tax liability is typically far more than the taxpayer actually owes.

After the first bill, the IRS will send at least one more bill, which will be even higher since penalties and interest have continued to accrue. If there is still no response, the IRS will begin collection proceedings.

At every stage of the collection process, taxpayers have opportunities to work with the IRS. As soon as a controversy arises, taxpayers can contact the Taxpayer Advocate Service, whose goal is to help people who are having financial difficulties. The IRS also offers installment agreements where taxpayers make small periodic payments over time to pay off their bill. Another option is to apply for an Offer in Compromise, where the taxpayer seeks to settle unpaid taxes for less than the full amount owed. The IRS will even consider requests to delay collection. A tax professional can help navigate the range of options.

Once a taxpayer receives notice that a substitute return has been filed, it becomes even more important to file the correct return for that year. Once accepted, the IRS will adjust the taxpayer’s account, which often drastically reduces the amount owed. This can be done at any time, even without including a payment.

The IRS generally has three years after a return is filed to make an assessment of the tax liability. If no return is filed, this statute of limitations does not begin to run. After assessment, the IRS then has 10 years to collect the taxes.
When the IRS does not receive a response to its letters, it begins collection actions such as tax liens and levies. A federal tax lien is a legal claim against the taxpayer’s current and future property (often a house or car), and rights to property such as wages and bank accounts. The IRS files a Notice of Federal Tax Lien with local or state authorities, providing public notice to creditors and damaging the taxpayer’s credit rating. While a lien is a legal claim against the taxpayer’s property, a levy is the actual seizure of that property to satisfy a tax debt.

Again, taxpayers have numerous opportunities to review, delay or stop these actions. A Collection Due Process hearing can be used to review collection actions that have been taken or proposed, and the Collection Appeals Program is available to review an IRS employee’s actions. In addition, taxpayers can appeal any Notice of Federal Tax Lien, and a Notice of Intent to Levy provides an automatic right to a hearing.

The worst thing people can do when dealing with the IRS is to bury their head in the sand. It is almost never too late in the process to engage with the agency, and tax professionals can be immensely helpful in calculating the proper tax owed and developing a plan to pay.