Entrepreneurial Corner|Increasing Business Value

May 13, 2014

Increasing Value in Your Company:

For Continued Ownership or Eventual Sale

 

Our Speaker:

Chris Blees, CPA, CM&AA

President, Chief Executive Officer

BiggsKofford, P.C.

What will be discussed?

  • Learn market valuation approaches
  • Understand what drives value
  • Hear how to improve value in your company
     

Thursday, May 22, 2014

7:30 – 9:00 a.m.

BiggsKofford’s Office,

630 Southpointe Court, Suite 200

 

  

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Entrepreneurial Corner|Sustainable Growth Strategies

March 28, 2014

Sustainable Growth Strategies:

Understanding your Business Model

Our Guest Speaker:

Chuck Kocher

Certified Master & Executive Business Coach

ActionCOACH

What will be discussed?

  • Learn about the nine core areas of your business model
  • See concrete examples of popular business models
  • Use tools to develop your current and future growth strategies
  • Understand how to leverage this tool against competition

 

Thursday, April 17, 2014

7:30 – 9:00 a.m.

BiggsKofford’s Office,

630 Southpointe Court, Suite 200

 

  

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Entrepreneurial Corner|Employment Law

March 11, 2014

Employment Law:

Protect Yourself from Employee Retaliation    

 

Our Guest Speaker:

Joan Rennekamp
Human Resources Consultant
Lewis Roca Rothgerber LLP

 

What will be discussed?

  • Litigation and legislation update from 2013 – state and nationwide
  • Proposed legislation that you should prepare for
  • Overtime exemption and independent contractor updates
  • Unemployment insurance requirements and much more

 

Thursday, March 20, 2014

7:30 – 9:00 a.m.

BiggsKofford’s Office,

630 Southpointe Court, Suite 200

 

  

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Despite Higher Tax Rates, S Corporations Retain Advantages Over C Corporations

February 17, 2014

(Tax & Accounting, By John N. Evans and Maria L. Castilla; Published January, 2014)

This Practice Alert, excerpted from a more extensive article in the December 2013 issue of Practical Tax. Strategies (Practical Tax Strategies ¶ 12201301), explains that while individual rates have gone up, the full tax picture often shows that operating as an S corporation remains the wiser choice.

After recent tax changes, owners of small businesses face a question: Should the business continue to function as an S corporation, or should the entity revoke its election under Subchapter S of the Code?

Despite a number of statutory constraints, conventional wisdom has generally favored an S corporation classification. An S corporation is a pass-through entity whose shareholders are subject to personal income tax based on the income of the corporation. A C corporation, by contrast, is taxed as a separate entity at corporate rates, and its distributions to shareholders are subject to the personal income tax. A small business corporation electing under Subchapter S may have no more than 100 shareholders, and may not have more than one class of stock. There are no similar constraints on C corporations. Nevertheless, an S corporation classification provides business owners a superior degree of flexibility and is therefore generally preferred. Specifically, by having its income flow directly to its shareholders, an S corporation is not subject to the double taxation that a C corporation may be unable to avoid.

Superficially, the American Taxpayer Relief Act of 2012 (P.L. 112-240), which was signed into law by

President Barack Obama on Jan. 2, 2013 to avoid the “fiscal cliff,” appears to contradict the foregoing conventional wisdom. The legislation increases the highest federal tax rate for individuals to 39.6% and provides for an additional 3.8% tax on net investment income. Prior to this legislation, the highest tax rate for both individuals and corporations was 35%. The highest corporate tax rate, however, remains 35%.

Tax rates are not the whole story. Given that the highest federal individual tax rate is now higher than the corporate rate, it may seem like operating a business through a C corporation rather than a flow-through entity would present a preferable alternative for owners of small, growing businesses. They may reevaluate their decision to elect a classification under Subchapter S and consider such restructuring to take advantage of the lower corporate rate available to C corporations, with the intent to reduce the overall tax obligation that would otherwise burden its shareholders. Such a simplistic analysis, however, is imprudent. A number of tax considerations may still favor an S election, even in light of the generally increased personal income tax rate.

Medicare tax exclusion for material participation. The Medicare tax on net investment income applies to trade or business income resulting from a passive activity within the meaning of Code Sec. 469, or the trading in financial instruments or commodities as defined in Code Sec. 475(e)(2) . As a result, the income received by a taxpayer from a trade or business in which that taxpayer materially participates is not subject to the additional 3.8% tax. This exclusion is not available to shareholders of a C corporation because the passive activity loss rules of Code Sec. 469 do not apply to C corporations unless they are closely held. The exclusion is, however, available to shareholders of S corporations that materially participate in the trade or business of the entity. As a result, S corporation shareholders that are involved in the operations of the entity’s trade or business activity on a regular, continuous, and substantial basis are not subject to the additional 3.8% tax on net investment income received as a shareholder of that entity.

Double taxation disadvantage. Other than the carve out from the additional 3.8% tax for material participation by shareholders in S corporations, a major reason to consider staying with S corporation status is to avoid double taxation imposed on income earned by a C corporation and distributed to shareholders. In addition, the risk of double taxation of corporate income arises in any scenario involving the sale of a business.

Conclusion. Choice-of-entity decisions are complex, and factors beyond the applicable personal or corporate income tax rates should be evaluated before determining whether to switch the organization of a business to a C corporation or to continue as an S corporation. Organizing as a C corporation is not always an advantage. Only by looking at the full tax picture-ideally with the help of an experienced tax professional-and by analyzing likely scenarios will one be able to determine what entity is most advantageous for your tax bill. It is imperative to take into account the risks of double taxation and other complex contingencies. Paying the higher rate on income flowing from an S corporation can still provide a more beneficial long-term tax situation. Right now, savvy business owners will avoid panic and impulsive decision-making by looking past the specter of the increased individual income tax rates and remembering that, even if corporate rates are lower, flow-through entities may still be the better way to go, all pertinent factors considered.

John N. Evans, CPA, is a partner, and Maria L. Castilla, J.D., is an associate in the Tax Group at Marks Paneth & Shron LLP in New York City.

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Top Five Reasons to Open an HSA in 2014

February 04, 2014

As employers search for ways to lower their health care costs, many are encouraging employees to sign up for a high-deductible health insurance policy paired with a health savings account. An HSA gives you a triple tax break: Your contributions are sheltered from income taxes, the money grows tax-deferred, and the funds can be withdrawn tax-free for medical expenses. It’s like a supercharged flexible spending account that never expires, and it can even serve as an extra retirement-savings fund. Most employers also add a few hundred dollars to the accounts each year as a bonus.

We’ve chosen our top five reasons to open an HAS in 2014:

#1 Deduct up to $8,550 on your 2014 tax return.

You can deduct your HSA contribution and save money even if you do not itemize your taxes. With deduction amounts of up to $8,550 (family maximum contribution of $6,550 for 2014 plus two $1,000 catch-up contributions if you are between 55-65) the tax savings can be substantial. You must have two HSAs, husband and wife, to get the full $8,550.

#2 Cut your insurance costs.

High deductible health plans can be significantly cheaper than low deductible plans. Your savings, when put into an HAS, can be used to cover your entire medical expenditures for the year, or better yet, rolled over and saved for future years.

#3 Pay for eligible medical expenses tax-free.

HDHP you must open your HSA before you incur any medical expenses. Use your HSA to pay for eligible medical expenses tax free. See HSA Resources’ list for a list of eligible and not eligible expenses.

#4 No “Use it or Lose it” provisions.

There’s no need to spend the end of the year stocking up on glasses, contacts and other things you don’t need just so you can spend everything left in your health care account. With an HSA the fund belong to you. There are no use it or lose it provisions. Any unused funds stay in your HSA for your benefit in the future. Even better, earnings on the HSA are not taxable. See the HSA Resources’ Distribution Worksheet for a complete list of eligible distribution reasons.

#5 Start a Heath Savings Account with only $25.

Low on cash? Opening an HAS won’t break your bank. HAS offers a low $25 account deposit requirement to get started. Since you must open your HAS before you incur an expense, it makes sense to open your account as soon as your insurance starts. Some customers open with the minimum amount and add more when they need it.

For other resources, take a look at HSA Resources’ Tax Savings Worksheet to see how much you can save and their Contribution Worksheet for details. Catch-up contributions must go into each spouse’s respective HSA so no more than $7,550 can go into one HSA and you need two HSAs to contribute the full $8,550 limit.

For more information, visit HSA Resources’ website or call 866-757-4727.

 

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IRS Audits Target Income of $1 Million or More

February 04, 2014

The number of audits performed this year by the Internal Revenue Service continued to decline in 2013 as it did in the previous year. Although revenue for the IRS has increased by a reported 6.3 percent, annual funding and staffing have decreased tremendously. According to data released in January, the agency, which has lost $1 billion in annual funding and 8,000 employees, over the last three years, collected $53 billion in revenue last year. The reduced audits resulted in $9.83 billion in revenue generated, which is the lowest figure since 2003.

In 2013, most income groups declined in the number of audits.  Less than one percent of taxpayers with incomes up to $1 million were audited last year; however, nearly 11 percent of taxpayers with incomes exceeding $1 million were reviewed, which is more than double the rate of audits done in 2006. This trend is proving to be very consistent for taxpayers who have surpassed the $1 million threshold.

Even though taxpayers are having difficulty reaching an IRS employee –only about 60 percent of toll-free callers were able to speak with a representative—the IRS is facing more potential budget cuts. With a proposed $1.8 billion cut by House Republicans, the agency may have additional internal losses. The 2014 financial budget is due to be set over the next two weeks.

If you have questions about how this may affect your business, call BiggsKofford at (719) 579-9090.

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What is your Triple Bottom Line?

July 15, 2010
Deborah Helton

Deborah Helton

Manager

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Sustainability has become the newest buzz word in business, but what is a sustainable business? A truly sustainable business considers its triple bottom line or impact on economic, social and environmental resources. What is the value of making your business sustainable? The overall goal is to reduce the negative impact and improve the positive impact to all three areas.

As a member of the Pikes Peak Sustainable Business Network (PPSBN), BiggsKofford recently formed a green team within our office. The green team met with the PPSBN’s assistant director, Jackie Rockwell to assess our triple bottom line. Being CPAs and entrepreneurs, we were fully aware of our financial status and what we previously believed to be the double bottom line that mattered most.

Our social impact was fairly strong as well. BiggsKofford has always been involved in the community and we are extremely involved in the non-profit arena. Employees are able use work time to volunteer, sit on numerous non-profit boards, and both the company and employees contribute monetarily within the community. Not to mention the heavily discounted services we offer to non-profits.

However, the environmental line of our triple bottom line had not been as seriously addressed. Although our audit department was already paperless, surely there was more that could be done to lessen our environmental impact. During this process we found was that making changes to reduce our negative impact did not require not mind bending concepts or even invasive changes. There were a number of small changes that were easily made without much cost or inconvenience to clients and employees. Some of those small improvements include serving clients water from a filtered water system as opposed to buying bottled water, stocking the break room with dishes and utensils purchased from Goodwill as opposed to buying disposable, turning off computer screens at the end of the day, and of course recycling aluminum, paper, plastic and cardboard.

Larger initiatives do require some employee time to implement and adjustments to policies and procedures, but overall the changes made have actually improved efficiency and either didn’t incur additional cost or actually saved money. We started by evaluating our larger cost areas, paper and printing transitioning many internal processes paperless. We continue to working toward more paperless processes such as paperless billing, increasing the number of tax returns filed electronic ally, and electronic delivery of tax returns where applicable and accepted by clients.

One of the unexpected side effects of these changes is the strong buy in from employees and their enthusiasm to participate and share ideas. Taking steps toward sustainability are beneficial for all involved. A sustainable business can create value for clients, employees, owners and the community using the triple bottom line concept.

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Our Location

Our Location

BiggsKofford
630 Southpointe Ct, #200
Colorado Springs, CO 80906

P: (719) 579-9090 | F: (719) 576-0126
info@biggskofford.com

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