Dignitas Briefing Paper: A Business Owner's Guide to Managing Your 2013 Tax Liability

7/29/2019 Dignitas Briefing Paper: A Business Owner's Guide to Managing Your 2013 Tax Liability

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A BUSINESS OWNERS GUIDE TO

MANAGINGYOUR 2013

TAX LIABILITY

A Dignitas Brieng Paper

DIGNITAS

SMART TIPS FORNAVIGATING A HIGHERTAX ENVIRONMENT


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Share Dignitas Brieng Paper A Guide to Managing Your 2013 Tax LiabilityBy Nicholas Delgado

Tax Planning 2013:Achievingtax efciency through

opportunistic planning.January 2013 ushered in new federal income tax rates through the passage of the American

Taxpayer Relief Act of 2012 as well as the Affordable Care Acts scheduled Medicaretax increases for certain income brackets. Newly released details on tax rates as well asthe extension of certain business tax credits and deductions allows business owners toopportunistically plan their 2013 tax strategy.

Dignitas Brieng Paper is your guide to considering your options on how to optimize your 2013

tax planning strategy. It covers a brief overview of the new federal tax landscape and importanttips for how to plan certain business expenses in order to maximize deductions and tax creditsavailable to you.

Dignitas Service Offering

WEALTH COACHING: Dignitas wealth coaching providesexecutives and entrepreneurs a unique platform to concentrateon developing the habits and maximizing the skills to help youmeet your nancial goals.

PERSONAL BENCHMARKING: Benchmarking allows familiesto understand where their current position is in relation to aparticular goal.

BALANCE SHEET ADVISORY:Dignitas serves as a duciaryto your family and provides tested and untarnished nancialadvice, as the rm does not participate in any third party

commissions or fees.

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A Business Owners Guide to

Managing Your 2013Tax Liability

By Nicholas Delgado

Nicholas Delgado founded Dignitas to provide clientswith personalized, high quality and independentadvice and solutions that allow them to simplify theirlives. With 15+ years of experience in the nancial

services and wealth advisory industry, Nick hasbecome a go-to advisor for start-up/high growthentrepreneurs, seasoned executives and individualsentering their second life.

Follow Nick on Twitter@DignitasCWO

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About the Author
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2013 Tax Landscape:Changing federal tax rates on

income and investment.

Impact by Income Threshold 2013 Tax Changes1

Single Filers: Over $400,000 Heads of Household: Over $425,000 Married Filing Jointly: Over $450,000

Married Filing Separately: Over $225,000

Income tax rates permanently rise from amaximum rate of 35% to 39.6%.

Capital gains and dividends tax rates rise from

15% to 20%.

Single Filers: Over $200,000 Heads of Household: Over $275,000 Married Filing Jointly: Over $300,000 Married Filing Separately: Over $150,000

The Personal Exemption Phaseout reducesthe allowable exemption for individuals in thesecategories by 2% for every $2,500 of AGIabove the threshold.

The Pease limitation reduces the value ofcertain itemized deductions by 3 percent of theamount by which AGI exceeds the threshold.

The total reduction cannot exceed 80 percentof the value of itemized deductions.

Single Filers: Over $200,000 Married Filing Jointly: Over $250,000 Married Filing Separately: Over $125,000

A 0.9% Medicare Hospital Insurance tax willbe assessed on any wages or small businessincome above the threshold.

A 3.8% Medicare surtax on the lesser ofcertain types of investment income or excessof modied adjusted gross income over thethreshold.

All tax brackets All individuals will now pay 6.2% in payrolltaxes on their income up to $113,700.

The estate, gift, and generation-skipping

transfer tax rates are now unied, andpermanently rise to 40% on amounts over$5,250,000 (indexed to ination). Portability,where the second spouse can use the rstspouses unused estate tax exemption, is nowpermanent.

Source: Tax Policy Center http://www.taxpolicycenter.org/UploadedPDF/412730-Tax-Provisions-in-ATRA.pdf

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For many small business owners, 2013 represents a changing tax landscape with a number oftaxes increases likely impacting their income. Below is a guide to some of the most signicanttax changes impacting individuals.


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One:Maximize Your 2013Retirement Plan Contributions

Retirement planning provides business owners one of the most ideal opportunities to offsetcurrent taxable income through tax deferred retirement accounts. Below is a list of retirementplan options for business owners and an explanation of the benets they provide.

Plan Type2 Cost &

Complexity

2013 Employer

Contribution

Limit

2013 Employee

Contribution

Limit

Annual

Reporting

Additional

Information

Simple IRA Low None $12,000;$14,500 forindividuals over50

None Generally forbusinesses with lesthan 100 employee

SEP IRA Low Up to 25% of gross income witha cap of $51,000.

None None Annual contributionare not mandatorybut must be madeto every eligibleemployee.

Solo 401(K) Medium 20-25% of salary $17,500;$23,000 forindividuals over50

Yes The combinedcontribution amouncant be more than100% of your pay,nor can it exceed$51,000 in 2013or $56,500 forindividuals over 50.

DenedBenet Plan

High Up to $205,000per year

None Yes Actual contributionlimit based upon

actuarial calculationPlan requiresmandatory annualcontributions.

2) Source: The Internal Revenue Service http://www.irs.gov/Retirement-Plans/Plan-Sponsor/Types-of-Retirement-Plans-1

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Two:Business Planning isTax Deductible.

Business owners should leverage their ability to deduct certain planning expenses and nancialtools that benet both them and their business. By engaging key advisors to facilitate short andlong-term planning, business owners can enhance the long-term valuation of their business.

Financial Planning: Business owners with a nancial plan in place have the information to makebetter decisions. Having an advisor who can assist you with optimizing your companys capitalstructure, providing retirement planning advice, and valuing your business will enhance both the

value of your company and your personal balance sheet.

Insurance Planning:Managing risk is not only a smart planning exercise for protecting yourfamily, it also enhances the value of your company to outside capital providers. Standardbusiness insurance such as life insurance, general liability insurance, property and casualtyinsurance and workmens compensation are all tax deductible. Business owners can alsoprotect their business through other risk management tools such as business interruptioninsurance, disability insurance, as well as a business overhead expense disability policy, whichare also tax deductible.

Succession Planning:Investing in succession planning can lead to both long and short-term taxsavings. In addition, a well thought out succession plan can enhance the value of your businessby facilitating an exit that optimizes timing, transaction structure, and the potential buyer pool.

And nally a succession plan can demonstrate to investors, capital providers, customers, andkey employees that the business has a plan ensure the continuation of the business whencurrent management is ready to exit.

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Three: Great Benets Lead toHappier and More Productive

Employees.If your employees are the lifeblood of your companys success, then 2013 is an optimal time toenhance your employee benets package. Many traditional and non-traditional employee fringebenets are tax deductible and can lead to happier and more productive employees over thelong-term. If you havent reviewed your fringe benets in recent years consider updating yourbenets plan now to maximize your tax savings.

Tax Free Fringe Benets (excluded from employees gross income)

Employer retirement contributions to an employees 401(K) or other qualied retirement plan.

Employers contribution to an employees accident or health insurance and qualied long-term careinsurance.

Up to $50,000 in coverage per employee and up to $2,000 in coverage for the employees spousein group term life insurance.

Employer provided educational assistance of up to $5,250 per year.

Up to $245 per month in parking and $245 per month in transit expenses or a combination of both.

Certain employee gifts (i.e. holiday gifts, tickets to special events, etc).

Awards and trophies up to certain dollar limitations. Meals provided to your employees at your place of business.

Computers, cell phones and other equipment for required business use at an employees home.

Qualied professional association dues and business publications.

Eating facilities, day care facilities, and athletic facilities available to all employees.

Source: The Internal Revenue Service http://www.irs.gov/publications/p15b/ar02.html#d0e3552 and NOLO http://www.nolo.com/legal-encyclopedia/

employee-fringe-benets-that-are-tax-free.html

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Four:Invest in Your Businessfor Growth.

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If youve held off on making major investments in your business over the past several years, nowis the time to reinvest. The continued economic recovery along with the extension of variousbenecial depreciation deductions and workforce hiring credits provide business owners aneconomic incentive to deploy surplus cash ow into their business.

Benecial Tax Credits and Deductions for Small Businesses8

Depreciation and R&D Tax Credits and Deductions:

Section 179 allows a business to expense the cost of qualied property placed into serviceduring the year, subject to a $500,000 maximum deduction and a $2 million threshold through2013, retroactive to 2012.

In addition to a Section 179 deduction and regular depreciation deductions, businesses can claim50 percent bonus depreciation for qualied property placed in service during the year.

A tax credit equal to 20 percent of qualied research and experimentation (R&E) costs above abase amount or an alternative simplied credit of 14 percent.

A renter, retailer, or restaurateur can write off improvements in 15 years, rather than over 39 yearsthrough 2013.

Workforce, Energy and Charitable Tax Credits: A business may claim a Work Opportunity Tax Credit (WOTC) for hiring a veteran or someone from

one of several economically disadvantaged groups. The credit is equal to approximately 40 percentof the rst $6,000 in wages paid to a new hire.

An enhanced deductions for gifts of food inventory through 2013, retroactive to 2012.

Small Business Incentives

An investor in qualied small business stock (QSBS) can exclude from tax 100 percent of the gainon the sale of the shares of the C-Corp acquired before January 1, 2014 and held for more thanve years.

A C-corp converted into an S-corp can hold assets for ve years or more and avoid a built-in gainstax.

Source: Tax Policy Center http://www.taxpolicycenter.org/UploadedPDF/412730-Tax-Provisions-in-ATRA.pdf and The New York Times http://boss.blogs.nytimes.com/2013/01/02/small-business-tax-incentives-survive-the-deal/


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Dignitas: Helpingentrepreneurs grow their

business.Dignitas is a multi-family ofce and wealth management rm. We provide clients withindependent and objective advice and solutions beyond the traditional investmentmanagement and nancial planning model. Our full-service life management platformorchestrates a collection of business and personal services to support our clients whole lifeneeds.

To continue the conversation, please contact:

Nicholas Delgado

Principal | Chief Wealth [email protected]

Twitter: @dignitascwo312.651.6131

Dignitas

111 E. Wacker DriveSuite 2606Chicago, IL 60601www.mydignitas.com

Dignitas provides the material in this brieng paper for informational purposes only. The material provided

herein is not intended to be tax or legal advice. Nothing herein should be relied upon or used without

consulting a tax advisor or lawyer to consider your specic circumstances, possible changes to applicable

laws, rules and regulations and other tax and legal issues.

Dignitas is an Investment Advisor Registered with the State of Illinois.

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Dignitas Briefing Paper: A Business Owner's Guide to Managing Your 2013 Tax Liability