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Ashleigh Laabs 4/29/21 Ashleigh Laabs 4/29/21

4 reasons to revisit your powers of attorney

Although much of estate planning deals with what happens after you die, it’s equally important to have a plan for making critical financial or medical decisions if you’re unable to make them for yourself.

Carefully designed financial and health care powers of attorney allow you to designate a trusted person to make financial and medical decisions on your behalf in the event an illness or injury renders you unconscious or otherwise incapacitated. They also allow you to provide your designee with guidance on making these decisions, including your preferences regarding the use of life-sustaining medical procedures.

Review and revise as needed

Powers of attorney can provide peace of mind that your wishes will be carried out, but it’s important not to get lulled into a false sense of security. You should revisit these documents periodically in light of changing circumstances and consider executing new ones.

Possible reasons you may need new powers of attorney include:

Your wishes have changed.
The person you designated to act on your behalf has died or otherwise become unavailable.
You’re no longer comfortable with the person you designated. (For example, perhaps you designated your spouse, but have since divorced.)
If you’ve moved to another state, your powers of attorney may no longer work the way you intended. Certain terms have different meanings in different states, and states don’t all have the same procedural requirements. Some states, for example, require durable powers of attorney to be filed with the local county recorder or some other government agency.

Honoring your powers of attorney

Even if your circumstances haven’t changed, it’s a good idea to execute new powers of attorney every few years. Why? Because powers of attorney are effective only if they’re honored, and — because of liability concerns — some financial institutions and health care providers may be reluctant to honor documents that are more than a few years old.

Contact us with any questions regarding powers of attorney. We’d be pleased to further explain how they work or, if your estate plan already includes powers of attorney, help determine if you need to revise them or execute new documents.

FMD’s estate planning team will work with you and your legal and financial advisers to design plans that align with your goals and objectives. When it comes to estate planning and wealth preservation, every one of our clients receives the quality of service and personal attention that are the hallmarks of FMD. To learn more about how we can help address your estate planning and wealth preservation needs, contact us today.

Ashleigh Laabs 4/29/21 Ashleigh Laabs 4/29/21

Is your wellness program built on a solid foundation?

In a society increasingly conscious of well-being, with the costs of health care benefits remaining high, many businesses have established or are considering employee wellness programs. The Centers for Disease Control and Prevention (CDC) has defined these programs as “a health promotion activity or organization-wide policy designed to support healthy behaviors and improve health outcomes while at work.”

Yet there’s a wide variety of ways to design and operate a wellness program. How can you ensure yours fulfills objectives such as reducing absenteeism and controlling benefits costs? Build it on a solid foundation.

Pandemic changes

Clearly, many business owners believe in wellness programs. Well before the COVID-19 pandemic, a 2017 study of 3,000 worksites by the CDC and researchers at the University of North Carolina found that almost 50% of those employers offered some type of health promotion or wellness program.

Since the pandemic hit, the focus of many wellness programs has begun to shift away from physical health to overall well-being. This means helping employees with improving their mental health, managing their finances and adjusting to remote work. (Some research has found that wellness programs don’t significantly improve short-term physical health or medical outcomes.)

Total leadership commitment

Whether it’s an existing wellness program or one you’re just starting, ask yourself a fundamental question: Who will champion our program? The answer should be: leaders at every level.

If a business takes a “top down” approach to wellness — that is, it’s essentially mandated for everyone by ownership — the program will likely struggle. Likewise, if a single middle manager or ambitious employee tries to lead the effort alone, while the rest of management looks on lackadaisically, the effort probably won’t meet its objectives.

Successful wellness programs are driven by total management buy-in — from the C-suite to middle management to leaders in every department.

Cultural alignment

A wellness program needs to be a natural and appropriate extension of your company’s existing culture. If it feels forced or “tone deaf,” employees may ignore the program or reflexively push back against it rather than approach it enthusiastically or simply with an open mind.

For example, if your business culture tends to be low-key and you engage a wellness vendor (such as a speaker) who shows up with a loud, flamboyant presentation, your staff may not appreciate what you’re trying to accomplish. Your wellness program’s materials and content should match the tenor and feel of your existing internal communications.

Ultimately, look to establish a “culture of wellness” at your company. For businesses that have never emphasized (or perhaps even discussed) healthy habits and lifestyles, doing so can present a great challenge. Be patient and persistent, bearing in mind that a cultural shift of this nature takes time.

Risks vs. benefits

These are just some of the foundational elements of an employee wellness program to bear in mind. We can help you estimate the costs and assess the risks vs. benefits of establishing or revising such a program.

Ashleigh Laabs 4/27/21 Ashleigh Laabs 4/27/21

Claiming the business energy credit for using alternative energy

Are you wondering whether alternative energy technologies can help you manage energy costs in your business? If so, there’s a valuable federal income tax benefit (the business energy credit) that applies to the acquisition of many types of alternative energy property.

The credit is intended primarily for business users of alternative energy (other energy tax breaks apply if you use alternative energy in your home or produce energy for sale).

Eligible property

The business energy credit equals 30% of the basis of the following:

Equipment, the construction of which begins before 2024, that uses solar energy to generate electricity for heating and cooling structures, for hot water, or heat used in industrial or commercial processes (except for swimming pools). If construction began in 2020, the credit rate is 26%, reduced to 22% for construction beginning in calendar year 2023; and, unless the property is placed in service before 2026, the credit rate is 10%.
Equipment, the construction of which begins before 2024, using solar energy to illuminate a structure’s inside using fiber-optic distributed sunlight. If construction began in 2020, the credit rate is 26%, reduced to 22% for construction beginning in 2023; and, unless the property is placed in service before 2026, the credit rate is 0%.
Certain fuel-cell property the construction of which begins before 2024. If construction began in 2020, the credit rate is 26%, reduced to 22% for construction beginning in 2023; and, unless the property is placed in service before 2026, the credit rate is 0%.
Certain small wind energy property the construction of which begins before 2024. If construction began in 2020, the credit rate is 26%, reduced to 22% for construction beginning in 2023; and, unless the property is placed in service before 2026, the credit rate is 0%.
Certain waste energy property, the construction of which begins before January 1, 2024. If construction began in 2020, the credit rate is 26%, reduced to 22% for construction beginning in 2023; and, unless the property is placed in service before 2026, the credit rate is 0%.
Certain offshore wind facilities with construction beginning before 2026. There’s no phase-out of this property.

The credit equals 10% of the basis of the following:

Certain equipment used to produce, distribute, or use energy derived from a geothermal deposit.
Certain cogeneration property with construction beginning before 2024.
Certain microturbine property with construction beginning before 2024.
Certain equipment, with construction beginning before 2024, that uses the ground or ground water to heat or cool a structure.

Pluses and minuses

However, there are several restrictions. For example, the credit isn’t available for property acquired with certain non-recourse financing. Additionally, if the credit is allowable for property, the “basis” is reduced by 50% of the allowable credit.

On the other hand, a favorable aspect is that, for the same property, the credit can sometimes be used in combination with other benefits — for example, federal income tax expensing, state tax credits or utility rebates.

There are business considerations unrelated to the tax and non-tax benefits that may influence your decision to use alternative energy. And even if you choose to use it, you might do so without owning the equipment, which would mean forgoing the business energy credit.

As you can see, there are many issues to consider. We can help you address these alternative energy considerations.

Ashleigh Laabs 4/27/21 Ashleigh Laabs 4/27/21

Should a tax apportionment clause be in your estate plan?

Even though the federal gift and estate tax exemption is currently very high ($11.7 million for 2021), there are families that still have to contend with significant federal estate tax liability. Plus, the exemption is scheduled to drop significantly in 2026, and reducing it sooner has been proposed. Even if you aren’t subject to federal tax, there may be taxes levied on your estate by your state. If your estate could be subject to estate tax, it’s important to consider how the tax will be apportioned. In some cases, including a carefully worded apportionment clause in your estate plan can be beneficial.

Apportionment options

Without an apportionment clause, apportionment will primarily be governed by applicable state law (although federal law covers certain situations). Most states have some form of an “equitable apportionment” scheme. Essentially, this approach requires each beneficiary to pay the estate tax generated by the assets he or she receives. Some states provide for equitable apportionment among all beneficiaries while others limit it to assets that pass through a will or to the residuary estate.

Often, state apportionment laws produce satisfactory results, but in some cases they may be inconsistent with your wishes. An apportionment clause allows you to specify how the estate tax burden will be allocated among your beneficiaries so that you can ensure your goals are achieved.

There’s no one right way to apportion estate taxes, but it’s important to understand how taxes would be apportioned under applicable law. If that wouldn’t be consistent with your wishes, consider an apportionment clause and any other changes you may need to make to your estate plan to ensure that your wealth is distributed in the manner you intend.

Suppose, for example, that your will leaves real estate valued at $10 million to your son, with your residuary estate, consisting of $10 million in stock and other liquid assets, passing to your daughter. Your intent is to treat your children equally. But your will doesn’t include an apportionment clause, and applicable law provides for estate taxes to be paid out of the residuary estate. Thus, the entire estate tax burden — including taxes attributable to the real estate — would be borne by your daughter.

One way to avoid this result is to apportion the taxes to both your son and daughter. But that approach could cause problems for your son, who may lack the funds to pay the tax without selling the property. To avoid this situation while treating your children equally, you might apportion the taxes to your residuary estate but provide life insurance to cover your daughter’s tax liability.

Talk to your advisor

If estate tax liability remains a concern, consult with us about the need to address tax apportionment in your estate plan. Without including an apportionment clause, heirs may be burdened with paying the tax attributable to assets they don’t receive.

Ashleigh Laabs 4/21/21 Ashleigh Laabs 4/21/21

Ensure competitive intelligence efforts are helpful, not harmful

With so many employees working remotely these days, engaging in competitive intelligence has never been easier. The Internet as a whole, and social media specifically, create a data-rich environment in which you can uncover a wide variety of information on what your competitors are up to. All you or an employee need do is open a browser tab and start looking.

But should you? Well, competitive intelligence — formally defined as the gathering and analysis of publicly available information about one or more competitors for strategic planning purposes — has been around for decades. One could say that a business owner would be imprudent not to keep tabs on his or her fiercest competition.

The key is to engage in competitive intelligence legally and ethically. Here are some best practices to keep in mind:

Know the rules and legal risks. Naturally, the very first rule of competitive intelligence is to avoid inadvertently breaking the law or otherwise exposing yourself or your company to a legal challenge. The technicalities of intellectual property law are complex; it can be easy to run afoul of the rules unintentionally.

When accessing or studying another company’s products or services, proceed carefully and consult your attorney if you fear you’re on unsteady ground and particularly before putting any lessons learned into practice.

Vet your sources carefully. While gathering information, you or your employees may establish sources within the industry or even with a specific competitor. Be sure you don’t encourage these sources, even accidentally, to violate any standing confidentiality or noncompete agreements.

Don’t hide behind secret identities. As easy as it might be to create a “puppet account” on social media to follow and even comment on a competitor’s posts, the negative fallout of such an account being exposed can be devastating. Also, if you sign up to receive marketing e-mails from a competitor, use an official company address and, if asked, state “product or service evaluation” as the reason you’re subscribing.

Train employees and keep an eye on consultants. Some business owners might assume their employees would never engage in unethical or even illegal activities when gathering information about a competitor. Yet it happens. One glaring example occurred in 2015, when the Federal Bureau of Investigations and U.S. Department of Justice investigated a Major League Baseball team because one of its employees allegedly hacked into a competing team’s computer systems. The investigation concluded in 2017 with a lengthy prison term for the perpetrator and industry fines and other penalties for his employer.

Discourage employees from doing competitive intelligence on their own. Establish a formal policy, reviewed by an attorney, that includes ethics training and strict management oversight. If you engage consultants or independent contractors, be sure they know and abide by the policy as well. Our firm can help you identify the costs and measure the financial benefits of competitive intelligence.

Ashleigh Laabs 4/21/21 Ashleigh Laabs 4/21/21

Spendthrift trusts aren’t just for spendthrifts

Now that the federal gift and estate tax exemption has reached an inflation-adjusted $11.7 million for 2021, fewer estates are subject to the federal tax. And even though President Biden has proposed reducing the exemption to $3.5 million, it’s uncertain whether that proposal will pass Congress. If nothing happens, the exemption is scheduled to revert to an inflation-adjusted $5 million on January 1, 2026. Nonetheless, estate planning will continue to be essential for most families. That’s because tax planning is only a small component of estate planning — and usually not even the most important one.

The primary goal of estate planning is to protect your family, and saving taxes is just one of many strategies you can use to provide for your family’s financial security. Another equally important strategy is asset protection. And a spendthrift trust can be an invaluable tool for preserving wealth for your heirs.

“Spendthrift” is a misnomer

Despite its name, the purpose of a spendthrift trust isn’t just to protect profligate heirs from themselves. Although that’s one use for this trust type, even the most financially responsible heirs can be exposed to frivolous lawsuits, dishonest business partners or unscrupulous creditors.

A properly designed spendthrift trust can protect your family’s assets against such attacks. It can also protect your loved ones in the event of relationship changes. If one of your children divorces, your child’s spouse generally can’t claim a share of the spendthrift trust property in the divorce settlement.

Also, if your child predeceases his or her spouse, the spouse generally is entitled by law to a significant portion of your child’s estate. In some cases, that may be a desirable outcome. But in others, such as second marriages when there are children from a prior marriage, a spendthrift trust can prevent your child’s inheritance from ending up in the hands of his or her spouse rather than in those of your grandchildren.

Safeguarding your wealth

A variety of trusts can be spendthrift trusts. It’s just a matter of including a spendthrift clause, which restricts a beneficiary’s ability to assign or transfer his or her interest in the trust and restricts the rights of creditors to reach the trust assets.

It’s important to recognize that the protection offered by a spendthrift trust isn’t absolute. Depending on applicable law, it may be possible for government agencies to reach the trust assets — to satisfy a tax obligation, for example.

Generally, the more discretion you give the trustee over distributions from the trust, the greater the protection against creditors’ claims. If the trust requires the trustee to make distributions for a beneficiary’s support, for example, a court may rule that a creditor can reach the trust assets to satisfy support-related debts. For increased protection, it’s preferable to give the trustee full discretion over whether and when to make distributions.

If you have further questions regarding spendthrift trusts, please contact us. We’d be happy to help you determine if one is right for your estate plan.

Ashleigh Laabs 4/21/21 Ashleigh Laabs 4/21/21

What happens if your spouse fails to designate you as beneficiary of his or her IRA?

One advantage of inheriting an IRA from your spouse is that you’re entitled to transfer the funds to a spousal rollover IRA. The rollover IRA is treated as your own IRA for tax purposes, which means you need not begin taking required minimum distributions (RMDs) until you reach age 72. This differs from an IRA inherited from someone other than a spouse, when the entire IRA balance must be withdrawn within 10 years of the original owner’s death. (Note that different rules apply to IRAs inherited before January 1, 2020.)

But what happens if your spouse mistakenly named a trust as beneficiary of his or her IRA, or failed to name a beneficiary at all?

Correcting the mistake

According to IRS guidance, there may be strategies you can use to ensure that you receive the benefits of a spousal rollover. Typically, this guidance comes in the form of private letter rulings (PLRs), which cannot be cited as precedent but indicate how the IRS is likely to rule in similar cases.

In one example, as described in a 2019 PLR, a deceased person named a trust as beneficiary of his IRA and failed to name a contingent beneficiary. The trustee executed a qualified disclaimer of the trust’s interest in the IRA, as did the deceased’s son and two grandchildren. The IRS ruled that the deceased’s wife was entitled to complete a spousal rollover.

Other rulings have permitted similar strategies when deceased individuals have failed to designate a beneficiary, causing an IRA or qualified retirement plan account to be included in their estates.

Consulting a professional

Be aware that PLRs depend on the specific facts presented in each case, so consult with us before taking any action. However, these rulings indicate that, when loved ones make beneficiary designation mistakes, there may be strategies you can use to correct them.

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Simple retirement savings options for your small business

Are you thinking about setting up a retirement plan for yourself and your employees, but you’re worried about the financial commitment and administrative burdens involved in providing a traditional pension plan? Two options to consider are a “simplified employee pension” (SEP) or a “savings incentive match plan for employees” (SIMPLE).

SEPs are intended as an alternative to “qualified” retirement plans, particularly for small businesses. The relative ease of administration and the discretion that you, as the employer, are permitted in deciding whether or not to make annual contributions, are features that are appealing.

Uncomplicated paperwork

If you don’t already have a qualified retirement plan, you can set up a SEP simply by using the IRS model SEP, Form 5305-SEP. By adopting and implementing this model SEP, which doesn’t have to be filed with the IRS, you’ll have satisfied the SEP requirements. This means that as the employer, you’ll get a current income tax deduction for contributions you make on behalf of your employees. Your employees won’t be taxed when the contributions are made but will be taxed later when distributions are made, usually at retirement. Depending on your needs, an individually-designed SEP — instead of the model SEP — may be appropriate for you.

When you set up a SEP for yourself and your employees, you’ll make deductible contributions to each employee’s IRA, called a SEP-IRA, which must be IRS-approved. The maximum amount of deductible contributions that you can make to an employee’s SEP-IRA, and that he or she can exclude from income, is the lesser of: 25% of compensation and $58,000 for 2021. The deduction for your contributions to employees’ SEP-IRAs isn’t limited by the deduction ceiling applicable to an individual’s own contribution to a regular IRA. Your employees control their individual IRAs and IRA investments, the earnings on which are tax-free.

There are other requirements you’ll have to meet to be eligible to set up a SEP. Essentially, all regular employees must elect to participate in the program, and contributions can’t discriminate in favor of the highly compensated employees. But these requirements are minor compared to the bookkeeping and other administrative burdens connected with traditional qualified pension and profit-sharing plans.

The detailed records that traditional plans must maintain to comply with the complex nondiscrimination regulations aren’t required for SEPs. And employers aren’t required to file annual reports with IRS, which, for a pension plan, could require the services of an actuary. The required recordkeeping can be done by a trustee of the SEP-IRAs — usually a bank or mutual fund.

SIMPLE Plans

Another option for a business with 100 or fewer employees is a “savings incentive match plan for employees” (SIMPLE). Under these plans, a “SIMPLE IRA” is established for each eligible employee, with the employer making matching contributions based on contributions elected by participating employees under a qualified salary reduction arrangement. The SIMPLE plan is also subject to much less stringent requirements than traditional qualified retirement plans. Or, an employer can adopt a “simple” 401(k) plan, with similar features to a SIMPLE plan, and automatic passage of the otherwise complex nondiscrimination test for 401(k) plans.

For 2021, SIMPLE deferrals are up to $13,500 plus an additional $3,000 catch-up contributions for employees age 50 and older.

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Changes to premium tax credit could increase penalty risk for some businesses

The premium tax credit (PTC) is a refundable credit that helps individuals and families pay for insurance obtained from a Health Insurance Marketplace (commonly known as an “Exchange”). A provision of the Affordable Care Act (ACA) created the credit.

The American Rescue Plan Act (ARPA), signed into law in March 2021, made several significant enhancements to the PTC. Although these changes expand access to the credit for individuals and families, they could increase the risk of some businesses incurring an ACA penalty.

More eligible people

Under pre-ARPA law, individuals with household income above 400% of the federal poverty line (FPL) were ineligible for the PTC. Under ARPA, for 2021 and 2022, the PTC is available to taxpayers with household incomes that exceed 400% of the FPL. This change will increase the number of PTC-eligible people.

For example, a 45-year-old single person earning $58,000 in 2021 (450% of FPL) would have been ineligible for the PTC under pre-ARPA law. Under ARPA, that individual is eligible for a PTC of about $1,250.

Lower income cap

The PTC is calculated on a sliding scale based on household income, expressed as a percentage of the FPL. The amount of the credit is limited to the excess of the premiums for the applicable benchmark plan over the taxpayer’s required share of those premiums. The required share comes from a table divided into income tiers.

Because the required share is less under the new tables for 2021 and 2022 than it otherwise would have been, the PTC will be greater. Under pre-ARPA law, a taxpayer might have had to spend as much as 9.83% of household income in 2021 on health insurance premiums. Under ARPA, that amount is capped at 8.5% for 2021 and 2022.

More penalty exposure

As mentioned, the expanded PTC will help individuals and families obtain coverage through a Health Insurance Marketplace. However, because applicable large employers (ALEs) potentially face shared responsibility penalties if full-time employees receive PTCs, expanded eligibility could increase penalty exposure for ALEs that don’t offer affordable, minimum-value coverage to all full-time employees as mandated under the ACA.

An employer’s size, for ACA purposes, is determined in any given year by its number of employees in the previous year. Generally, if your company had 50 or more full-time or full-time equivalent employees on average during the previous year, you’ll be considered an ALE for the current calendar year. A full-time employee is someone employed on average at least 30 hours of service per week.

Assess your risk

If your business is an ALE, be sure you’re aware of this development when designing or revising your employer-provided health care benefits. Should you decide to add staff this year, keep an eye on the tipping point of when you could become an ALE. Our firm can further explain the ARPA’s premium tax credit provisions and help you determine whether you qualify as an ALE — or may soon will.

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Know the ins and outs of “reasonable compensation” for a corporate business owner

Owners of incorporated businesses know that there’s a tax advantage to taking money out of a C corporation as compensation rather than as dividends. The reason: A corporation can deduct the salaries and bonuses that it pays executives, but not dividend payments. Thus, if funds are paid as dividends, they’re taxed twice, once to the corporation and once to the recipient. Money paid out as compensation is only taxed once — to the employee who receives it.

However, there are limits to how much money you can take out of the corporation this way. Under tax law, compensation can be deducted only to the extent that it’s reasonable. Any unreasonable portion isn’t deductible and, if paid to a shareholder, may be taxed as if it were a dividend. Keep in mind that the IRS is generally more interested in unreasonable compensation payments made to someone “related” to a corporation, such as a shareholder-employee or a member of a shareholder’s family.

Determining reasonable compensation

There’s no easy way to determine what’s reasonable. In an audit, the IRS examines the amount that similar companies would pay for comparable services under similar circumstances. Factors that are taken into account include the employee’s duties and the amount of time spent on those duties, as well as the employee’s skills, expertise and compensation history. Other factors that may be reviewed are the complexities of the business and its gross and net income.

There are some steps you can take to make it more likely that the compensation you earn will be considered “reasonable,” and therefore deductible by your corporation. For example, you can:

Keep compensation in line with what similar businesses are paying their executives (and keep whatever evidence you can get of what others are paying to support what you pay).
In the minutes of your corporation’s board of directors, contemporaneously document the reasons for compensation paid. For example, if compensation is being increased in the current year to make up for earlier years in which it was low, be sure that the minutes reflect this. (Ideally, the minutes for the earlier years should reflect that the compensation paid then was at a reduced rate.) Cite any executive compensation or industry studies that back up your compensation amounts.
Avoid paying compensation in direct proportion to the stock owned by the corporation’s shareholders. This looks too much like a disguised dividend and will probably be treated as such by IRS.
If the business is profitable, pay at least some dividends. This avoids giving the impression that the corporation is trying to pay out all of its profits as compensation.

You can avoid problems and challenges by planning ahead. If you have questions or concerns about your situation, contact us.

Ashleigh Laabs 4/7/21 Ashleigh Laabs 4/7/21

Providing optimal IT support for remote employees

If you were to ask your IT staff about how tech support for remote employees is going, they might say something along the lines of, “Fantastic! Never better!” However, if you asked remote workers the same question, their response could be far less enthusiastic.

This was among the findings of a report by IT solutions provider 1E entitled “2021: Assessing IT’s readiness for the year of flexible working,” which surveyed 150 IT workers and 150 IT managers in large U.S. organizations. The report strikingly found that, while 100% of IT managers said they believed their internal clients were satisfied with tech support, only 44% of remote employees agreed.

Bottom line impact

By now, over a year into the COVID-19 pandemic, remote work has become common practice. Some businesses may begin reopening their offices and facilities as employees get vaccinated and, one hopes, virus metrics fall to manageable levels. However, that doesn’t mean everyone will be heading back to a communal working environment.

Flexible work arrangements, which include the option to telecommute, are expected to remain a valued employment feature. Remote work is also generally less expensive for employers, so many will likely continue offering or mandating it after the pandemic fades.

For business owners, this means that providing optimal IT support to remote employees will remain a mission-critical task. Failing to do so will likely hinder productivity, lower morale, and may lead to reduced employee retention and longer times to hire — all costly detriments to the bottom line.

Commonsense tips

So, how can you ensure your remote employees are well-supported? Here are some commonsense tips:

Ask them about their experiences. In many cases, business owners are simply unaware of the troubles and frustrations of remote workers when it comes to technology. Develop a relatively short, concisely worded survey and gather their input.

Invest in ongoing training for support staff. If you have IT staffers who, for years, provided mostly in-person desktop support to on-site employees, they might not serve remote workers as effectively. Having them take one or more training courses may trigger some “ah ha!” moments that improve their interactions and response times.

Review and, if necessary, upgrade systems and software. Your IT support may be falling short because it’s not fully equipped to deal with so many remote employees — a common problem during the pandemic. Assess whether:

Your VPN system and licensing suit your needs,
Additional or better cloud solutions could help, and
Your remote access software is helping or hampering support.

Ensure employees know how to work safely. Naturally, the remote workers themselves play a role in the stability and security of their devices and network connections. Require employees to undergo basic IT training and demonstrate understanding and compliance with your security and usage policies.

Your technological future

The pandemic has been not only a tragic crisis, but also a marked accelerator of the business trend toward remote work. We can help you evaluate your technology costs, measure productivity and determine whether upgrades are likely to be cost-effective.

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Keep it all in the family: Transferring your vacation home

If your family owns a vacation home, you know what a relaxing refuge it can be. This is especially true these days due to the limited travel options you may have because of COVID-19 pandemic restrictions. However, without a solid plan and ground rules that all family members agree to, conflict and tension may result in a ruined vacation — or worse yet, selling the home.

Determining ownership

From an estate planning standpoint, it’s important for all family members to understand who actually owns the home. Family members sharing the home will more readily accept decisions about its usage or disposition knowing that they come from those holding legal title.

If the home has multiple owners — several siblings, for example — consider the form of ownership carefully. There may be advantages to holding title to the home in a family limited partnership (FLP) and using FLP interests to allocate ownership interests among family members. You can even design the partnership — or a separate buy-sell agreement — to help keep the home in the family.

Laying down the rules

Typically, disputes between family members arise because of conflicting assumptions about how and when the home may be used, who’s responsible for cleaning and upkeep, and how the property will ultimately be sold or transferred. To avoid these disputes, it’s important to agree on a clear set of rules that cover using the home (when, by whom); and responsibilities for cleaning, maintenance and repairs.

If you plan to rent out the home as a source of income, it’s critical to establish rules for such activities. The tax implications of renting out a vacation home depend on several factors, including the number of rental days and the amount of personal use during the year.

Planning for the future

What happens if an owner dies, divorces or decides to sell his or her interest in the home? It depends on who owns the home and how the legal title is held. If the home is owned by a married couple or an individual, the disposition of the home upon death or divorce will be dictated by the relevant estate plan or divorce settlement.

If family members own the home as tenants-in-common, they’re generally free to sell their interests to whomever they choose, to bequeath their interests to their heirs or even to force a sale of the entire property under certain circumstances. If they hold the property as joint tenants with rights of survivorship, an owner’s interest automatically passes to the surviving owners at death. If the home is held in an FLP, family members have a great deal of flexibility to determine what happens to an owner’s interest in the event of death, divorce or sale.

Handle with care

A vacation home that has been in your family for generations needs to be handled carefully. You likely want to do everything possible to hold on to it for future generations. We can assist you in developing a plan to help you achieve this.

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Tax advantages of hiring your child at your small business

As a business owner, you should be aware that you can save family income and payroll taxes by putting your child on the payroll.

Here are some considerations.

Shifting business earnings

You can turn some of your high-taxed income into tax-free or low-taxed income by shifting some business earnings to a child as wages for services performed. In order for your business to deduct the wages as a business expense, the work done by the child must be legitimate and the child’s salary must be reasonable.

For example, suppose you’re a sole proprietor in the 37% tax bracket. You hire your 16-year-old son to help with office work full-time in the summer and part-time in the fall. He earns $10,000 during the year (and doesn’t have other earnings). You can save $3,700 (37% of $10,000) in income taxes at no tax cost to your son, who can use his $12,550 standard deduction for 2021 to shelter his earnings.

Family taxes are cut even if your son’s earnings exceed his standard deduction. That’s because the unsheltered earnings will be taxed to him beginning at a 10% rate, instead of being taxed at your higher rate.

Income tax withholding

Your business likely will have to withhold federal income taxes on your child’s wages. Usually, an employee can claim exempt status if he or she had no federal income tax liability for last year and expects to have none this year.

However, exemption from withholding can’t be claimed if: 1) the employee’s income exceeds $1,100 for 2021 (and includes more than $350 of unearned income), and 2) the employee can be claimed as a dependent on someone else’s return.

Keep in mind that your child probably will get a refund for part or all of the withheld tax when filing a return for the year.

Social Security tax savings

If your business isn’t incorporated, you can also save some Social Security tax by shifting some of your earnings to your child. That’s because services performed by a child under age 18 while employed by a parent isn’t considered employment for FICA tax purposes.

A similar but more liberal exemption applies for FUTA (unemployment) tax, which exempts earnings paid to a child under age 21 employed by a parent. The FICA and FUTA exemptions also apply if a child is employed by a partnership consisting only of his or her parents.

Note: There’s no FICA or FUTA exemption for employing a child if your business is incorporated or is a partnership that includes non-parent partners. However, there’s no extra cost to your business if you’re paying a child for work you’d pay someone else to do.

Retirement benefits

Your business also may be able to provide your child with retirement savings, depending on your plan and how it defines qualifying employees. For example, if you have a SEP plan, a contribution can be made for the child up to 25% of his or her earnings (not to exceed $58,000 for 2021).

Contact us if you have any questions about these rules in your situation. Keep in mind that some of the rules about employing children may change from year to year and may require your income-shifting strategies to change too.

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