Bonused

Posts Tagged ‘Year End’

I would like to know if bonuses paid to employees in the United Kingdom, Asia, Australia and Europe are treated the same as the regular wages. I know that wages, whether regular or supplemental, show us as gross income when it comes to personal tax filing.

What are your thoughts on the subject?

What If You Did It Like This?

Year End Tax Planning Help-Your Corporation

A greeting to you all my friends, it is time to write another year end tax planning article. What shall we discuss? What can I tell you all that will offer some sort of financial revelation helping with both your income tax and strategic financial management?

Well, times are difficult but some of you might still be in need of some practical tax planning. How about a C corporation taxpayer (a corporation that is not a subchapter S and pays tax as though operating as an individual) that has a sizeable profit, a father-son ownership team, and reports for tax purposes on the cash basis method of accounting. Suppose that Daddy has aspirations of retiring in the not too distant future. Try this one on for size. For the current year, why not allow the Company to pay tax on $75,000 of income. By leaving this amount of taxable income inside of the C Corporation, the 15% and 25% tax brackets will be exploited. The father –son owners have a much higher marginal tax rate facing them-35%. By doing it this way, we save money within the corporate structure allowing it to stockpile additional capital to manage operations going forward. The earnings exceeding the $75,000 of desired taxable income will be paid out to father-son in the form of bonus or other compensation. In addition, the Company will make a profit sharing plan contribution on their behalves. This is a great tactic for this Company’s year end tax planning as the lower corporate rates are used for maximum benefit and the owners (father and son) get tax sheltered income in the form of retirement plan contributions. The business now has working capital as we approach another year of operations.

As for a strategic financial consideration, if Father is considering retirement in the not too distant future, why not consider gifting the stock to qualified small business trust, where sonny is the beneficiary, in January (the next year of operations). The Company would then make a corresponding S corporation election (due by March 15th for calendar year corporations-use form 2553). A gift tax return will have to be filed by father and a valuation will need to be performed on the gifted shares. The valuation of these shares will consider the time frame of the gift to the trust and its earnings potential. If father will strip most or all of the earnings and the gift term is say ten years (the recognition period for the S corporation, when it is converted from a C corporation, in order to avoid liquidation tax), the value of the gift will be significantly reduced thus preserving the estate tax exemption for other assets in his estate. The gift tax return is filed on form 709 and is due by the filing of Father’s personal income tax return.

For those of you more advanced, when converting a C corporation to an S corporation, income is recognized at the corporate level to the extent of unreported receivables and payables, the 481(a) adjustment, because of using the cash basis method of accounting for tax reporting purposes. Remember, a major trait of the S corporation involves the flow-through of profits to the shareholders, thus avoiding corporate level tax. Regarding cash basis C corporations converted to S corporations, the would-be taxable income of the entity would have to be eliminated to avoid a corporate level tax. This would be true for the entire ten year recognition period. Because it would be the goal of the corporation to eliminate taxable income, in order to reduce the exposure to gift tax consequences, we have effectively killed two birds with one stone. There will be no corporate level tax; the corporation can continue to use the cash basis method of accounting, and Father will have a limited exposure to estate and gift taxes. Wait a minute, that’s three birds with one stone. Nice.        

Ron Piner, CPA

Host of “Better Business”

Saturday mornings at 10ET

On WBIS AM 1190

www.wbis1190.com

taxguy9@hotmail.com

I'm eager to hear your comments...

If I accrue Salary Bonuses for Year End 2006, is that part of their 2006 W2 since I will not pay them till 2007?
This one is not for Employees. Its for Officers (Owners). Do they follow the same rule?

What are your thoughts on the subject?

Do you want your company to pay less tax this year?

Of course you do. It’s a pretty silly question, right? No company wants to pay more tax than they absolutely have to.

Nevertheless, many companies don’t take advantage of the opportunities that are available. Luckily, with some fairly straightforward tax planning, you can significantly reduce your corporate tax this year.

Here are our five top tips that will help reduce your company’s tax liability this year:

1) Bring Forward Long Put Off Expenditures :

Bring forward that long overdue office repair or redecoration project or that direct marketing campaign you were considering for next year. Any expenditure before the company year end will reduce the current year’s tax liability and lets’ face it, your office will look nicer.

2) Make The Most Of Your Capital Allowances :

You will certainly save your company some tax by bringing capital expenditures – such as machinery – forward. Some of the bigger savings can be found in the purchase of energy saving technologies and products which qualify for a 100% allowance.

Companies generally receive a 25% allowance on plant and machinery related capital expenses, but SMEs companies get a 40% allowance in their first year. So, if you are a small or medium sized company (as defined by company law), take advantage and make those types of purchases before the end of your first year trading.

Even better, for computers and telephone equipment, you can claim a 100% reduction against your profits in the first year.

The best bet of all is in research and development – a new R&D tax credit means you can claim 150% of what you spend, and if you are a loss-making company you have the option of taking a part of that as an immediate cash payment.

This is a little known and often misunderstood tax credit, but many companies can take advantage of it. Get some advice on what exactly qualifies as research and development first, just to be on the safe side.

3) Re-structure Your Dividends and Bonuses:

Smaller companies – in particular, owner-managed businesses, can save on National Insurance payments by taking dividends rather than paying themselves a salary. On average for a higher rate tax payer, the tax rate will be reduced to around 39% compared to 47%.

4) Minimize Capital Gains Costs:

One of the best ways to minimize capital gains is to reinvest the proceeds of a sale into buying a replacement asset. Be warned, though, that not all assets qualify for relief. Check first before utilizing this tip.

5) Get The Right Receipts

A useful tip is to make certain that your employees ask for VAT receipts whenever they make a purchase on behalf of the company. That will ensure you can claim back the VAT on all purchases that are VAT rated.

If your company reviews it’s tax affairs between two and three months before the end of your financial year, then you can start planning how to effectively and, most of all, legally, minimize your tax liabilities.

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I got offers at both Barclays Capital and Goldman Sachs both as an Operations Analyst. The pay is relatively the same (before year end bonuses) however the main difference I noticed is that Goldman pays HALF for overtime while Barclays pays TIME AND A HALF. I can’t decide which company to accept my offer to.

below is the break down in numbers:
Barclays
starting salary (based on 40 hour work week): 50,000
signing bonus: 5,000
relocation bonus: 5,000
overtime: time and a half

goldman sachs:
starting salary(based on 40 hour work week): 55,000
signing bonus: 0
relocation bonus: 10,000
overtime: half

i would assume that benefits are relatively the same at both places. if anyone works at either please give me some in sight on the culture and the work involved. i’ve heard horror stories about how goldman works its people like dogs. is this really true? any insight is greatly appreciated. thanks

What are your thoughts on the subject?

This time of year, now through the first quarter of next year, you will see articles offering year-end tax planning tips. Tax planning tips can increase income in future years, so be careful. Many tax tips often involve accelerating deductions, deferring income, or last-minute charitable deductions (the first three following tips).

For example you may be compelled to make a large charitable contribution this year by December 31st. However if you could be in a higher tax bracket next year because your income is going up because of a substantial raise or bonus, you would have been better off to make the contribution next year. Some may say this is heartless, but I say just the reverse. If you pay less in taxes because of good planning, your will be better off financially and able to give more in the future.

If you have volatile income, before you use the tax savings tips here and in other articles, you may want to run projections for this year and next. A good accountant will run these calculations for you, but understand that tax law changes from year to year and from one administration to the next can often make predicting tricky.

1. Defer income

If you are able to defer income, such as commissions and bonuses until next year, you might be able to pay lower income taxes this year. However, you must consider what your income and taxes will be next year to be sure that you are not actually increasing your taxes.

2. Accelerating deductions

Accelerating major deductions such as state income taxes, property taxes, and mortgage interest may help anyone, especially during a high-income year. If you don’t think your personal income tax bracket will be higher next year, and you’re not affected by the alternative minimum tax, you can make state and/or local tax payments before the end of this year so you can take a deduction this year.

3. Charitable Contributions

Consider making chartable deductions before the end of the year to receive a deduction. You must make the contribution by 12/31/2007.

Donate appreciated property such as real estate or stock instead of the proceeds of the sale. You may be able to receive a deduction for the value of the contribution without paying tax on the growth portion resulting from a sale, then a gift. If you intend to transfer appreciated property, begin early since it will take several weeks to make the change.

4. Alternative minimum tax traps

Many people face large AMT bills compared to previous years. Be warned if you have larger than usual medical expenses, non-federal income and real estate taxes, or miscellaneous itemized deductions; or if you have exercised large stock options, to name a few.

Year-end tax planning strategies can backfire under AMT. Be very careful accelerating some deductions and exercising stock options at year end. See a tax professional for information on your specific tax situation.

5. Be careful when investing new money in mutual funds at the end of the year

Call the mutual fund and find out when the distribution date is. You may want to purchase after the distribution date to avoid owing taxes on fund shares that you owned only for a short period of time and had little to no gain.

6. Contribute the maximum to retirement accounts

Contribute the maximum allowable to employer-sponsored defined contribution retirement plans, such as profit sharing, 401(k), 403(b) and 457(b) plans. This not only provides an excellent tax deduction, but it also helps you to plan for your future retirement.

You may want to contribute to an IRA; up to $2,000 is fully deductible if you did not participate in a company-sponsored retirement plan or if your income falls below certain levels.

If you are self-employed, you can contribute more to a pension plan than into an IRA. You have until December 31 to set up the plan.

7. Investment Losses

If your investment portfolio has stock that has depreciated in value and is worth less than when you originally purchased it, you may want to consider selling it. You may be able to use that loss to offset capital gains and ordinary income.

Be careful though; investment decisions should not just be for tax purposes. Make sure that you do your research before selling any investment. Some people react too quickly when investments lose value; others sometimes hold on too long. If you decide to sell and invest in something new, make sure that you examine your portfolio to ensure that you have the right mix of investments to match your investment profile, risk propensity and asset allocation model.

8. Save for College

Consider contributing to your child’s college savings into a 529 plan. The contributions are not deductible on your Federal return, but parents may be able to write off contributions up to a certain dollar amount on their state income tax return. Log on to SavingforCollege.com to find out information about your state.

9. Home Improvements

Here is a great deal. How about saving energy and the environment, lower utility bills, increase the value of your home and save on taxes all at once. Projects for the home’s shell (insulation, windows, sealing) and heating and cooling may qualify for a one time tax credit of $500. However you are running out of time, since they must be in place by the end of 2007. So while crawling around your attic looking for ornaments, think of adding insulation. If you made home improvements over the last couple of years, be sure to dig up your records; you may already be eligible.

Before moving forward on one of these projects, make sure that you get full information about these and other energy efficient tax incentives from The Tax Incentives Assistance Project at http://www.energytaxincentives.org/. There you will find more information about Home Shell and Heating & Cooling as well as Hybrid Passenger Vehicles and Solar Energy Systems.

10. If self-employed, buy equipment and supplies

Have you been putting off buying needed business equipment and supplies, or do you know that you will soon need them? Now may be the time to invest in your business and save taxes as well. Business tax can be complex; therefore it may be wise to first call your accountant prior to large purchases.

11. Give gifts to children

When you give to friends and family, it is usually not taxable to the recipient or the giver. Many people do not realize though if that gift exceeds $12,000 per person it is taxable to the giver, and at a high rate. Therefore, if you intend to give anyone more than that amount, you could give some this year and some next. The second tip is that you and your spouse can both give $12,000 per person, doubling the amount not subject to tax. Be sure to consult your legal and tax advisor prior to making all gifts.

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Despite a dismal economy and a rescue check from the government, Wall Street investment firms still plan to hand out nearly $14 billion in year-end bonuses. Priya David reports.

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