Owning A Business With Co-Owners: Buy-Sell Agreement Needed!

If you are either starting or buying a business that will includes more than one co-owner, you want and need a buy-sell agreement—period.

You have multiple reasons to put a buy-sell agreement in place and not one reason not to have a buy-sell agreement.

A well-drafted agreement can do these valuable things for you:

  1. Transform your business ownership interest into a more liquid asset
  2. Prevent unwanted ownership changes
  3. Save taxes and avoid hassles with the IRS

Buy-sell agreements come in two basic flavors:

  • Cross-purchase agreements
  • Redemption agreements (sometimes called liquidation agreements)

When you enter into a cross-purchase agreement, it’s a contract between you and the other co­-owners. Under the agreement, a withdrawing co-owner’s ownership interest must be purchased by the remaining co-owners when a triggering event occurs, such as death or disability.

When you enter into a redemption agreement, it’s a contract between the business entity itself and its co-owners (including you). Under the agreement, a withdrawing co-owner’s ownership interest must be purchased by the entity when a triggering event occurs.

Both types of agreements have three main goals:

Goal No. 1. Ensure that there will be a willing buyer for each co-owner’s interest when a triggering event occurs.

Goal No. 2. Restrict each co-owner from unilaterally transferring his or her ownership interest to someone outside the existing group.

Goal No. 3. Ensure favorable tax results for all concerned.

The buy-sell agreement is not a “do it yourself’ project. You likely need professional help from your Tax Advisor, Attorney and possibly your insurance agent.


For more information, contact by phone or email:

(314) 205-9595 or toll free 888-809-9595

INFO@ADVISORYGROUPASSOCIATES.COM

ADVISORY GROUP ASSOCIATES’ Tax & Advisory Firms

Trusted Advisors & devoted professional experts providing tax, accounting, compliance and business solutions.

Our Mission: Sharing Solutions that deliver real value.

Visit our website: www.advisorygroupassociates.com

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Proposed House Bill: Repeals & Replaces Obamacare

The bill’s passage isn’t guaranteed, and even if it makes it to the Senate, that chamber is likely to make substantial revisions.

Still, the American Health Care Act goes a long way to fulfilling the Republicans’ seven-year pledge to repeal former President Obama’s landmark health reform law. And it would erase the coverage gains of the last few years and leave 24 million more people uninsured by 2026 than under Obamacare, according to a Congressional Budget Office analysis of an earlier version of the bill.

Obamacare subsidies replaced with refundable tax credits based mainly on age

The GOP’s plan would eliminate the Obamacare subsidies, which are refundable tax credits based on a person’s income and cost of coverage in their area. More than eight in 10 enrollees on the Obamacare exchanges receive this assistance, but individuals making more than $47,500 and families of four earning more than $97,200 do not qualify.

Instead, the Republicans want to issue refundable tax credits to help people afford coverage on the individual market, but these credits will be based mainly on a person’s age.

The credits will range from $2,000 for 20-somethings to $4,000 for those in their early 60s. The credits will also have an income cap. Those making more than $75,000 would see their tax credits start to phase out, and an enrollee making more than $215,000 would not be eligible. Families with incomes above $150,000 would see their credits dwindle, while those earning more than $290,000 would not be qualify.

The bill would also kill the additional help that individuals earning less than roughly $30,000 a year receive to cover their out-of-pocket costs. More than half of the enrollees on the Obamacare exchanges receive these cost-sharing subsidies.

Exchange individual and employer mandates for continuous coverage requirements

The GOP’s bill would get rid of the Obamacare requirement that people have health coverage or face a tax penalty. It would also eliminate the mandate that employers with at least 50 employees provide health insurance to their workers.

Under Obamacare, these companies had to provide affordable insurance to staffers who work more than 30 hours a week. They would face a penalty if they did not meet this criteria and their employee sought subsidies on the exchanges.

Instead, the Republican plan seeks to allow insurers to impose a 30% surcharge on the premiums of those who let their coverage lapse for at least 63 days. The plan would enable insurers to levy this surcharge for one year, but it would only apply to policies bought in the individual or small group markets.

Under a recent amendment, states that seek waivers could replace this provision with one that allows insurers to charge consumers who have had a gap in coverage based on their health status.

Change Obamacare’s protections for people with pre-existing conditions

States could get waivers that would allow carriers to set premiums based on enrollees’ medical backgrounds under several circumstances. Those enrollees would have to have let their coverage lapse, and the state would have to set up a risk program — such as a high-risk pool –that, in some cases, could provide help to those being charged higher premiums.

States could also seek waivers that would allow insurers to sell plans that don’t include all the essential health benefits mandated by the Affordable Care Act. Under Obamacare, carriers must provide outpatient care, emergency services, hospitalization, maternity, mental health and substance abuse, prescription drugs, rehabilitation services, lab work, preventative care and pediatric services.

The bill would provide $138 billion through 2026 to help states and insurers lower premiums and set up high-risk pools to cover those with pre-existing conditions.

Revamp Medicaid funding

The House bill would significantly overhaul Medicaid.

It would send the states a fixed amount of money per Medicaid enrollee, known as a per-capita cap. States could also opt to receive federal Medicaid funding as a block grant for the adults and children in their program. Under a block grant, states would get a fixed amount of federal funding each year, regardless of how many participants are in the program.

Either option would limit federal responsibility, shifting that burden to the states. However, since states don’t have the money to make up the difference, they would likely reduce eligibility, curtail benefits or cut provider payments. The block grant would be more restrictive since the funding level would not adjust for increases in enrollment, which often happens in bad economic times.

The legislation would also end the enhanced match rate for Medicaid expansion for new enrollees starting in 2020. Those already in the program could stay as long as they remain continuously insured. States that have not already expanded would not be allowed to do so, starting immediately.

States could also require able-bodied Medicaid recipients to work, participate in job training programs or do community service.

The Congressional Budget Office projects that bill would cut the federal government’s spending on Medicaid by 25% by 2026 as compared to current law.

Widen the age-band so insurers can charge older folks more

Under Obamacare, insurers could only charge older enrollees three times more than younger policy holders. The bill would widen that band to five-to-one, which would hike premiums for those in their 50s and early 60s, but reduce them for younger folks.

States would also be allowed to seek waivers to allow insurers to charge older consumers even more than five times younger ones.

Repeal Obamacare taxes

The Republican legislation would eliminate the taxes the law levied on wealthy Americans, insurers, prescription drug makers, device manufacturers and others.

 

For more information, contact by phone or email

(314) 205-9595 or toll free 888-809-9595 INFO@ADVISORYGROUPASSOCIATES.COM

ADVISORY GROUP ASSOCIATES’ Tax & Advisory Firms

Trusted Advisors & devoted professional experts providing tax, accounting, compliance and business solutions.

Our Mission:   Sharing Solutions that deliver real value.  

Visit our website: www.advisorygroupassociates.com

2017 First Quarter Federal Tax Developments

During the first quarter of 2017, there were many important federal tax developments. This letter highlights some of the more significant developments for you. As always, contact our office if you have any questions.

Tax reform: Tax reform discussions continue in Washington, D.C. House Republicans have detailed their tax reform plans in their Blueprint for Tax Reform. The White House is expected to release more details about its tax proposals before Memorial Day. GOP leaders in the Senate have indicated that they are crafting tax reform proposals. Tax reform proposals are expected to impact taxpayers of all types. President Trump has discussed consolidating and reducing the tax rates for individuals, lowering the corporate tax rate, abolishing the federal estate tax, and eliminating the alternative minimum tax (AMT). Democrats have proposed some small business tax incentives. Both Democrats and Republicans have discussed making tax incentives part of an infrastructure package. At the same time, various House and Senate committees have looked at agriculture tax policy, small business tax policy, and more.

Health care: In February, the IRS announced that it will continue to process individual returns that do not report the taxpayer’s health coverage status under the Affordable Care Act (ACA). The agency will accept returns that fail to indicate coverage, an exemption or a shared responsibility payment. The IRS had planned to reject these returns (known as “silent returns”) this filing season after having accepted them in past years. Taxpayers may, however, be contacted later, the IRS added.

Vehicles: The IRS has released the inflation-adjusted limitations on depreciation deductions for business-use passenger automobiles, light trucks, and vans first placed in service during calendar year 2017. All limitations are inflation-adjusted based upon October 2016 CPI amounts, with rounding conventions that account for almost all 2016 limits remaining the same for 2017 (only the third -year limitation for light trucks and vans rose, from $3,350 to $3,450 in 2017).

Corporations: The IRS confirmed in February that a new revision of the Instructions for Form 7004 correctly reflects that calendar year C corporations are eligible for an automatic six-month extension. The six-month extension is granted under Code Sec. 6081(a), the IRS explained.

The Tax Court declined in March to expand the economic hardship relief rules to challenge a proposed levy on a corporation’s assets (Lindsay Manor Nursing Home, Inc., 148 TC No. 9, TC Memo. 2017-50). The court rejected the taxpayer’s argument that corporations as well as individuals should be able to claim economic hardship relief from levy.

Information returns: The IRS described the de minimis safe harbor for information return penalties created by the Protecting Americans from Tax Hikes Act of 2015 (PATH). The IRS also clarified that the safe harbor does not apply to intentional errors and in cases where the payor fails to file an information return or furnish a payee statement. Generally, a de minimis error need not be corrected if the error for any single amount does not exceed $100. The PATH Act provides for a lower threshold for errors with respect to the reporting of an amount of withholding or backup withholding.

FATCA:  The IRS issued final and temporary Foreign Account Tax Compliance Act (FATCA) regulations governing information reporting by foreign financial institutions (FFIs) with respect to U.S. accounts that is reinforced by 30 percent withholding on certain payments when certain information reporting regimes are not followed. The final regulations adopt 2014 temporary regulation with modifications. Final and temporary regulations also correct and make modifications to 2013 guidance.

Filing season: In March, an IRS official told Congress that the filing season has not experienced any significant delays or hurdles. Measurements, such as customer/telephone service and the agency’s efforts to curb tax-related identity theft, show improvement, the official reported. The IRS also reminded taxpayers that a law passed in 2015 slowed the processing of some refunds this filing season. The Protecting Americans from Tax Hikes Act of 2015 (PATH Act) law generally requires that no refund will be made to a taxpayer before the 15th day of the second month following the close of that tax year, if the taxpayer claimed the earned income tax credit (EITC) or the advance child tax credit (ACTC) on his or her return. As a result, many early filers this year experienced delayed refunds.

Offers-in-compromise: The IRS reminded taxpayers and tax professionals about its updated policy covering Offer in Compromise (OIC) applications. OIC applications received on or after March 27, 2017, will now be returned without further consideration in instances where the taxpayer has not filed all required tax returns, the agency explained. The application fee will be returned and any required initial payment submitted with the OIC will be applied to outstanding tax debt. This new policy, however, does not apply to current year tax returns if there is a valid extension on file.

Students: The IRS Data Retrieval Tool (DRT) is offline, the agency announced in March. The DRT provides tax data that automatically fills in information for part of the Free Application for Federal Student Aid (FAFSA) as well as the Income-Driven Repayment (IDR) plan application. The IRS reminded applicants filling out the FAFSA or applying for an IDR plan that they can manually provide the requested financial information from copies of their tax returns.

Audit coverage Audit coverage rates are at low levels, the IRS has reported. According to the IRS, the audit coverage rate for individuals fell 16 percent from FY 2015 to FY 2016. The 0.7 percent audit coverage rate for individuals was the lowest coverage rate in more than a decade.

Retirement plans: The U.S. Department of Labor (DOL) has proposed a 60-day delay to the applicability date of guidance defining who is a “fiduciary,” as well as related provisions that tighten disclosure and conflict-of-interest rules. In related news, the IRS announced a temporary excise tax nonapplicability policy. The IRS explained that it will not apply Code Sec. 4975 and related reporting obligations with respect to any transactions or agreement to which the DOL’s temporary enforcement policy, or other subsequent related enforcement guidance, would apply.

Reversing the Tax Court, the Sixth Circuit Court of Appeals held that a DISC-Roth IRA arrangement that allowed a Roth IRA to sidestep annual Roth contribution limits must be respected (Summa Holding, Inc., CA-6, February 16, 2017). Congress created both a Domestic International Sales Corporation (DISC) and Roth Individual Retirement Accounts (Roth IRAs) to lower taxes, reasoned the court; any unintended text-driven consequence was up to Congress to remedy rather than through the application of the substance -over-form doctrine.

Small business In February, the IRS announced that small employers will have more time to inform eligible employees about qualified small employer health reimbursement arrangements (QSEHRAs). The agency has extended the initial written notice requirement.

Interim guidance describes the new payroll tax credit election for increasing research expenses. The PATH Act enhanced the credit for qualified small businesses.

IRS budget: In March, President Trump unveiled an outline of his proposals for the fiscal year (FY) 2018 federal government budget. The president proposed to reduce the IRS’s budget by some $239 million.

If you have any questions about these or other federal tax developments, please contact one of our Professional Tax Advisors.

For more information, contact by phone or email

(314) 205-9595 or toll free 888-809-9595

INFO@ADVISORYGROUPASSOCIATES.COM

ADVISORY GROUP ASSOCIATES’ Tax & Advisory Firms

Trusted Advisors & devoted professional experts providing tax, accounting, compliance and business solutions.

Our Mission:   Sharing Solutions that deliver real value.

Visit our website: www.advisorygroupassociates.com

The Tax Benefits of Showing a Loss

Tax Benefits  pic

Tax Benefits
Image: thebalance.com

As head of the team of professionals at ADVISORY GROUP ASSOCIATES’ Tax & Advisory firms, Frank L. Zerjav Sr., CPA, guides a respected St. Louis County, Missouri, with clients nationwide that for over 40 years of trust offers a broad spectrum of professional accounting, compliance, tax & advisory services to Individuals, Investors, professionals, business and real estate owners. In their complimentary monthly electronic newsletter to subscribers the TAX TIPS NEWSLINE which provides comprehensive and timely insight on a wide range of taxation issues including federal and state incentives and current issues, Frank Zerjav, CPA, and the team recently highlighted strategies for Individuals or businesses that show a loss.

Business or Investment losses, in which income is exceeded by deductions, present a number of tax benefits that can also improve cash flow dynamics. This has to do with the way in which a Net Operating Loss (NOL) within a tax year results in a deduction that is carried back two years and carried forward 20 years. The carry-back element typically results in an instant refund of federal and state income taxes paid during the two years prior.

In certain cases where the NOL carry-back would not generate a significant tax refund, or the money is not immediately needed, it may be advantageous to waive the two-year carry-back and carry the NOL forward. Given the complexity of the subject, it makes sense to seek out the guidance of a knowledgeable tax advisor. The ADVISORY GROUP ASSOCIATES’ Tax & Advisory firms offer an initial complimentary consultation to help identify proven tax-smart strategies, options and solutions that deliver real value for the professional services needed based upon the particular situation of any taxpayer.

For more information, answers to questions or concerns, do not hesitate to contact a Professional Tax Advisor by calling toll free (888) 809-9595 or visit their recently launched website: www.advisorygroupassociates.com