Disasters, natural or otherwise, could ultimately lead to your company’s demise. Fortunately, advance planning can keep you on track. Here are seven scenarios to be prepared for.
1. A natural disaster. To paraphrase the old saying, you can talk about the weather, but there’s not much you can do about it – except have a plan in place in the event a natural disaster damages your business premises. Two tips: Maintain adequate insurance and store valuable business data at a secure off-location site.
2. A key employee quits. Cross-training can avoid business interruptions if a key employee leaves unexpectedly. You might also want to consider asking key employees to sign a reasonable non-compete agreement to protect confidential information. Typically, these agreements prohibit an employee from working for a competitor for a certain period.
3. An employee embezzles company funds. To safeguard your business assets, divide responsibilities so one person doesn’t have complete control over the books. Set up a system of checks and balances.
4. Your biggest customer leaves. To keep your business from going under, update your marketing plan, stay in touch with former customers, establish an emergency budget, and diversify your revenue stream.
5. You become disabled. “Key-person” disability insurance can provide funding to keep your business afloat. The policy may also cover employees who are vital to operations.
6. Your company or partnership splits up. Draft a buy-sell agreement to ensure a smooth transition due to the sale of a business interest, including a forced sale on the death of one of your shareholders or partners. The agreement can establish the terms of a buy-out and set a value for the respective business interests.
7. Your computer system crashes. Extra hardware, such as tablets or laptops, regular off-site backups, and cloud storage for important documents can avoid a crisis when your computer fails.
What springs to mind when you hear “insurance?” Most likely, you think about auto, health, home, and life. But what if an illness or accident were to deprive you of your income? Even a temporary setback could create havoc with your finances. And statistics show that your chances of being disabled for three months or longer between ages 35 and 65 are almost twice those of dying during the same period.
Yet you may overlook disability insurance as part of your financial planning. Here’s how to fill that gap and get the right coverage to protect your financial well-being.
● Scrutinize key policy terms. First, ask how “disability” is defined. Some policies use “any occupation” to determine if you are fit for work following an illness or accident. A better definition is “own occupation.” That way you receive benefits when you cannot perform the job you held at the time you became disabled.
● Check the benefit period. Ideally, you want your policy to cover disabilities until you’ll be eligible for Medicare and social security.
● Determine how much coverage you need. Tally the after-tax income you would have from all sources during a period of disability and subtract this sum from your minimum needs.
● Decide what you can afford. Disability insurance can be expensive. You may opt to forego adding riders and options that boost premiums significantly. If your budget won’t support the ideal benefit payment, consider lengthening the elimination period. Just be sure that accumulated sick leave and savings will carry you until the benefits kick in.
Discussing finances with your parents may be a talk none of you are eager to tackle. But addressing the topic can benefit your entire family by clarifying your parents’ wishes and enabling you to help establish a joint plan for carrying those wishes to fruition. Here are questions that can start the dialogue.
● Legal – Do your parents have a will and an estate plan? Have they executed a trust, a durable power of attorney for finances, or an advance healthcare directive? Will they allow you to review the documents and/or speak with their attorney?
● Medical – What medical insurance policies are in place? Do your parents have long-term care insurance? Who is their personal physician and what significant medical issues exist?
● Income, expenses, and debt – What are the sources and amounts of your parents’ income and expenses? To whom do your parents owe money, and how much do they owe?
● Records – Where do your parents keep tax returns, bank and brokerage statements, and similar records? Who are their tax preparers, financial advisors, and/or stockbrokers? Will your parents allow you current access to those records and advisors?
Talking about finances with your parents can be a daunting prospect. Give us a call if you’d like us to be part of the conversation. We’re here to help.
The “tax extenders” legislation that became law in December 2014 included the “Achieving a Better Life Experience Act” (also called the ABLE Act). This law provides for tax-exempt accounts that can help you or a family member with disabilities pay for qualified expenses related to the disability. These “ABLE accounts” are exempt from income tax although contributions to an account are not deductible on your federal income tax return. ABLE accounts are generally not means tested and some can provide limited bankruptcy protection.
You or a family member are eligible to open an ABLE account if:
- You’re entitled to social security disability benefits due to blindness or other disability, and that blindness or disability occurred before age 26; or
- You file a disability certification with the IRS for the tax year.
Annual contributions to an ABLE account are limited to the amount of the annual gift tax exclusion ($14,000 for 2015). Distributions are tax-free as long as they are less than your qualified disability expenses for the year. The list of qualified disability expenses includes housing, education, employment training/support, health prevention/wellness services, financial management, legal fees, and funeral expenses. Other expenses are also approved under the regulations.
Distributions exceeding qualified disability expenses are included in taxable income and are generally subject to a 10% penalty tax. Distributions can be rolled over to another ABLE account for another qualified beneficiary and beneficiaries can be changed between family members. Funds in the account can earn interest or dividends and are not subject to federal income tax as long as distributions are used for qualified disability expenses. ABLE accounts do not have a “use it or lose it” feature and funds can carry over to future years.
The balance remaining in the account after the beneficiary passes away can be used to reimburse state Medicaid payments made on behalf of the beneficiary after the account was established. The remainder goes to the deceased’s estate or to another qualified designated beneficiary. After-death distributions that are not used for qualified disability purposes are subject to income taxes, but not the 10% penalty.
If you are thinking many of these rules sound familiar, you’re correct. ABLE accounts are modeled on 529 college savings accounts. Give us a call so we can help you make the most of this new opportunity.
There are several sources of revenue that are not subject to income tax.
Here are the most common sources of money that are not taxed on your federal income tax return:
- Borrowed money such as from banks or personal loans.
- Money received as a gift or inheritance from family or friends.
- Money paid on your behalf directly to a school or medical facility.
- Most life insurance proceeds.
- Cash rebates from businesses when you buy an item.
- Child support payments.
- Money you receive for sustaining an injury.
- Scholarships for tuition and books.
- Disability insurance proceeds from a policy purchased with after-tax dollars.
- Up to $500,000 of profit for a couple selling their personal residence.
- Interest received on municipal bonds.If you have included any of these on your income tax return for the past three years, you can amend your return for a tax refund.
If you would like assistance in determining what to include on your income tax return, please contact us. We are here to help you.