A Checklist for Plan Sponsors

Serious busy mid aged professional business man lawyer or financial law expert wearing suit holding corporate documents reading paper contract sitting at desk in office managing risks feeling doubt.Once a retirement savings plan has been approved and is in place, it’s tempting to sit back and adopt an “I’m done,” hands-off attitude. However, to ensure that a plan will continue to operate effectively, employers should periodically review plan provisions and features. Here are some points to check.

  • How the plan is presented. The more convinced employees are of the wisdom of saving for retirement, the greater the level of employee participation. The greater the participation, the more the plan can benefit all employees — including highly compensated ones. Regular meetings, newsletters, and handouts are effective means of communicating plan advantages. Check to make sure printed materials are up to date and easy to understand, and distribute them frequently.
  • Plan investments. Employers that sponsor participant-directed plans can limit potential legal liability for losses caused by employees’ investment decisions if plan investment choices meet certain requirements under Section 404(c). Very generally, where 404(c) protection is sought, a plan should offer at least three “core” investment choices, allow employees to switch investments at least once each quarter, and provide participants with adequate disclosure of specified investment information.
  • Administration. Participants and beneficiaries must be given a copy of the Summary Plan Description (SPD) within 120 days after a plan is adopted or within 90 days after becoming eligible to participate in the plan or receive benefits. Review the SPD to make sure it accurately describes the provisions of your plan. If changes have been made to the plan document — which is likely, given the recent tax law changes — then all participants must receive a notification of these changes within 210 days after the end of the plan year in which the changes were adopted. Generally, all participants must receive a copy of the SPD every five years.
  • Summary annual reports (SARs). Summary annual reports must be distributed to participants within nine months after the close of the plan year. If a plan receives an extension to file its annual report (Form 5500) with the IRS, then the SAR must be distributed within two months after the end of the extension.
  • Plan rollovers. Qualified plans must allow a participant to elect direct rollover of any eligible distribution to an IRA or another employer-sponsored retirement plan. Your plan should have procedures in place to handle direct rollovers.
  • Bonding. Generally, plan fiduciaries and others who handle the assets of a plan must be bonded. The bond must be equal to at least 10% of the funds handled by the bonded individual, but cannot be for less than $1,000 and need not be for more than $500,000.
  • Loans to participants. Loans that are not properly administered may be treated as constructive distributions resulting in taxable income to the recipients. Review loans to make sure that loan balances do not exceed the maximum limitations. Unless used to finance the purchase of a principal residence, all loans must be repaid within five years. A plan may impose more stringent conditions on loans than the law requires.
  • Plan forms. All forms should meet current requirements. Forms that may need updating include beneficiary designation forms, benefit election forms, and the notice of distribution options.

Understanding Total Return

Hands of a young Asian businessman Man putting coins into piggy bank and holding money side by side to save expenses A savings plan that provides enough of his income for payments.A mutual fund’s performance — its total return — can be either positive or negative. In other words, a fund either made or lost money for a measured time period. There are three separate elements that contribute to total return: the distribution of fund income (interest and dividends received on the fund’s investments); the distribution of capital gains; and the rise or fall in the price of fund shares. A fuller understanding of these three elements can help you make more informed decisions as an investor.

Fund Income

Bond issuers, such as corporations and the U.S. government, pay interest on the money loaned to them by the investors that buy the bonds. If you buy a government bond, for example, you know how much interest the bond will pay you over the life of the bond. Bonds are also known as “fixed-income” investments because you can anticipate your earnings.

If you own shares in a bond fund rather than an individual bond, you will share in the interest earned by the bonds in the fund. However, if you own your bond fund through an employer’s retirement plan, you do not actually receive your share of the interest income in cash. Instead, your share of the interest is reinvested in the fund and is used to buy additional shares for your account.

If you own shares in a stock fund, you may receive a distribution of dividends the fund received on its various stock holdings. Your share of the dividends paid to a stock fund you own through an employer’s retirement plan is reinvested in that fund and used to buy additional shares.

Capital Gains Distributions

When fund managers sell an investment that has increased in price, the fund will have a capital gain. Funds, of course, have losers as well as winners. When a fund sells an investment for less than it paid for it, the fund suffers a loss. Most mutual funds distribute capital gains (minus capital losses) to their shareholders at the end of the year. If you own funds through a retirement account, then the capital gains distributions are reinvested in additional fund shares.

Rise or Fall in Fund Share Prices

The market prices of stocks and bonds rarely remain static — they typically rise and fall each trading day. Thus, the share price of a fund depends on the current value of the investments it holds in its portfolio, after deduction of expenses and liabilities. As an investor, it’s important to understand that until you sell your shares in a fund, any gain or loss in their value is only a gain or loss on paper.

Total Return and Fund Performance

There are several ways to measure fund performance, and total return plays a part in each method.

  • Average annual total return: One way to measure the performance of a mutual fund is to look at its average annual total return for different periods of time. A comparison of a fund’s return to a benchmark will show how the fund has performed relative to an index.
  • Cumulative total return: Looking at a fund’s cumulative total return shows how much a fund has earned over a specific period.
  • Year-by-year returns: It can be helpful to compare a fund’s performance from one year to the next. If you notice a wide variation year to year, the fund is most likely a highly volatile one.

You should consider the fund’s investment objectives, charges, expenses, and risks carefully before you invest. The fund’s prospectus, which can be obtained from your financial representative, contains this and other information about the fund. Read the prospectus carefully before you invest or send money. Shares, when redeemed, may be worth more or less than their original cost.

Prices of fixed income securities may fluctuate due to interest rate changes. Investors may lose money if bonds are sold before maturity.

Stock investing involves a high degree of risk. Stock prices fluctuate and investors may lose money.

What are Tax Credits?

Notebook with tax credit  sign on a table. Business concept.Taxes are an integral part of running a business, and they often represent a substantial portion of your expenses. However, there’s good news for businesses looking to reduce their tax burden and stimulate growth – business tax credits. These credits provide financial incentives for companies to invest in various activities, from research and development to promoting renewable energy. In this article, we’ll explore what business tax credits are, how they work, and how they can benefit your company.

What Are Business Tax Credits?

Business tax credits are financial incentives offered by governments at the federal, state, or local level to encourage businesses to engage in certain activities that benefit society, the environment, or the economy. These credits work by reducing a company’s tax liability, effectively lowering the amount of taxes they owe. They serve as a reward for businesses that invest in activities that align with the government’s policy objectives.

Types of Business Tax Credits

There are various types of business tax credits available, each with its own set of eligibility criteria and benefits. Here are some common types:

1. Research and Development (R&D) Tax Credit: This credit is designed to encourage businesses to invest in innovation and research activities. It can help offset the costs associated with developing new products, processes, or technologies.

2. Renewable Energy Tax Credits: These credits are intended to promote the use of renewable energy sources, such as solar, wind, and geothermal energy. They can significantly reduce the cost of investing in clean energy initiatives.

3. Investment Tax Credits: These credits reward businesses for investing in specific projects or assets that promote economic growth or job creation. They are often used to stimulate investment in economically distressed areas.

4. Low-Income Housing Tax Credit: Aimed at promoting the development of affordable housing, this credit provides incentives for businesses to invest in housing projects for low-income individuals and families.

5. Work Opportunity Tax Credit: This credit encourages the hiring of individuals from specific target groups, such as veterans and individuals with disabilities. It can offset a portion of the costs associated with employing these individuals.

Benefits of Business Tax Credits

Business tax credits offer numerous advantages for companies:

1. Reduced Tax Liability: The most apparent benefit is the reduction of your company’s tax liability. This translates into cost savings that can be reinvested in your business, used for expansion, or allocated to other vital activities.

2. Encouragement for Investment: Tax credits provide a financial incentive to invest in areas such as research and development, clean energy, or affordable housing. This encourages businesses to participate in activities that contribute positively to society and the economy.

3. Competitive Advantage: By taking advantage of available tax credits, your business can gain a competitive edge. This is especially relevant in industries where innovation, sustainability, and social responsibility play a significant role.

4. Stimulated Growth: Many tax credits are designed to spur economic growth, create jobs, and improve local communities. By participating in these initiatives, your business can be a catalyst for positive change.

How to Access Business Tax Credits

To access business tax credits, follow these steps:

1. Identify Eligibility: Determine which tax credits your business may be eligible for. Consult with a tax professional to assess your eligibility accurately.

2. Document Activities: Keep meticulous records of the activities that make you eligible for the tax credits. Proper documentation is essential to substantiate your claims.

3. File Accurate Tax Returns: Ensure your tax returns accurately reflect the credits you are claiming. Mistakes can lead to delays and audits.

4. Consult with Professionals: Tax professionals, accountants, and legal experts can help you navigate the complex world of tax credits, ensuring you maximize your benefits while staying compliant with tax laws.

Business tax credits offer a valuable opportunity for businesses to reduce their tax liabilities and invest in activities that promote growth, innovation, and social responsibility. By understanding the available credits and working with professionals to access them, your business can not only thrive financially but also contribute to positive change in your community and beyond.

Help Your Working Teen Get a Jump-Start on Saving

Happy family watching funny video on laptop together with their adopted daughter during leisure time at homeYou may have a teen in your family who holds down a part-time job or works full-time during the summer. You can help your child lay the groundwork for future retirement security early on by encouraging your child to open an individual retirement account (IRA).

You may, or may not, get some resistance, especially if your child has other plans for spending the money. However, you should persist since the benefits can be significant over the long term. Here are some points you can bring up as you make your case.

Savings Can Grow Over Time

When it comes to building savings, your child’s age is a major advantage. Given enough time, even a relatively small investment could grow into a significant sum due to the power of compounding. For example, a one-time investment of $6,000 could grow to $110,521 in 50 years, assuming a hypothetical 6% annual return. Invest $6,000 every year for 50 years at 6%, and your child could accumulate over $1.7 million. Of course, investment returns can vary from year to year and are not guaranteed.

IRAs Offer Tax Advantages

As long as your teen does not participate in an employer’s retirement plan, contributions to a traditional IRA will be fully tax deductible. (With plan participation, income limits may apply.) Any earnings that investments in the IRA make will grow tax deferred. Your child won’t have to pay any income taxes on the IRA funds until they are withdrawn from the IRA.

Contributions to a Roth IRA are not tax deductible, but they can be withdrawn tax free at any time for any purpose. Earnings accumulate tax deferred and can be withdrawn tax free once your child reaches age 59½ and has had a Roth IRA for at least five tax years. Tax-free withdrawals are also available after five years for first-time home buying expenses (to a maximum of $10,000) or on account of disability or death.

Your teen can contribute up to $6,500 to one or more IRAs in 2023 or the amount of his or her annual compensation, if less. The IRS adjusts this IRA contribution limit periodically for inflation. Your child has until the April tax-filing deadline to contribute to an IRA for the prior tax year.

If you would like some help deciding which type if IRA may make the most sense for your teen child, be sure to get in touch with your financial professional.

Beneficial Ownership Information Reporting Under the Corporate Transparency Act

Serious millennial man using laptop sitting at the table in a home office, focused guy in casual clothing looking at the paper, communicating online, writing emails, distantly working or studying on computer at home.What is Beneficial Ownership Information Reporting?

Beneficial Ownership Information (BOI) reporting is a federal requirement by the Corporate Transparency Act (CTA). BOI reports include information about all the company’s beneficial owners.

Who is considered a Beneficial Owner?

A beneficial owner is any individual who, directly or indirectly, exercises substantial control over a reporting company or owns or controls at least 25 percent of the company’s ownership interests.

What is the Corporate Transparency Act?

The Corporate Transparency Act (CTA) is a United States federal law that aims to increase transparency in corporate ownership. The law requires that individuals considered beneficial company owners in the U.S. provide the Financial Crimes Enforcement Network (FinCEN) with specific information.

For individuals, that includes:

  • their full name
  • date of birth
  • current residential address
  • a federally issued identification number from a driver’s license or passport

For companies, that includes:

  • legal entity name or DBA name
  • business address
  • state jurisdiction of formation of registration

Any changes to the above reporting information must be updated with the FinCEN within 30 days of the change.

What is considered a Reporting Company?

Companies required to report a BOI are referred to as reporting companies. There are two types of reporting companies: domestic and foreign. They are defined as follows:

  1. Domestic reporting companies are corporations, limited liability companies (LLC), and other entities created by filing a document with a secretary of state or similar office in the U.S.
  2. Foreign reporting companies are entities (including corporations and LLCs) formed under a foreign country’s law and registered to do business in the U.S. by filing a document with a secretary of state or similar office.

There are 23 types of entities that are exempt from the reporting requirements. Those entities can be found on the FinCEN website.

What is the Reporting Process?

The reporting process takes place via an online portal on the FinCEN’s website. Filing begins January 1, 2024, with an initial filing window of one year (i.e., initial BOI reporting can be done from January 1, 2024, through January 1, 2025). The FinCEN will not accept BOI reporting before January 1, 2024. There is no fee for submitting this information.

New entities established after December 31, 2023, must report within 90 days of establishment.

Hefty civil ($500/day) and criminal penalties (up to $10,000) can be imposed on companies that fail to file a complete report.

To be sure that you and your firm comply with BOI reporting requirements, check with your trusted tax accountant or CPA.

Back to Business Basics

Hand drawing a conceptual diagram about the importance to find the shortest way to go from point A to point B, or a simple solution to a problem.It’s reassuring to remember that downturns are a normal part of the business cycle. And, just as there are strategies that help businesses thrive during profitable times, there are basic survival tactics that businesses can employ when the outlook is less than rosy.

Control Spending

Finances should be your fundamental concern when economic conditions are unsettled. When sales are slow, it’s time to preserve your cash. Look closely at how you can reduce overhead. Make certain that all your operating expenses are necessary. Even if you’ve recently made cuts, see if there are other measures you can take. Unless absolutely necessary, consider putting plans that call for capital investment on the back burner until conditions improve.

Maintain Customers

While containing costs is essential, maintaining your customer base is also crucial. So, when you’re deciding how to trim spending, make sure you don’t make cuts in areas that deliver real value to your customers. At the same time, watch your receivables. Make sure your customers’ accounts stay current.

Think Short Term

Plan purchases for the short term, keeping a minimum of cash tied up in inventory. At the same time, however, make sure you’ll be able to restock quickly. Your suppliers may be able to suggest ways you can cut costs (perhaps by using different materials or an alternative manufacturing process). See if you can negotiate better credit terms.

Plan for Contingencies

There’s a big difference between imagining that you might have to seriously scale back your business and having an action plan in place that you can quickly execute. To develop a realistic contingency plan, prepare a budget based on the impact you imagine an extended downturn would have on your business. Then outline the steps you would need to take to survive those conditions. For an added level of preparedness, draw up a second, “worst case scenario” budget and chart the cost-cutting steps you’d need to take to outlive those more dire circumstances.

Many businesses will survive challenging economic times by being informed about their financial condition and by planning ahead to succeed.

What Is Your Most Valuable Asset?

Middle Eastern Lady Using Laptop Working Online Wearing Eyewear Sitting At Workplace In Modern Office. Remote Job, Technology And Career Profession Concept. Side ViewYour most valuable asset isn’t your real estate or the tech stocks you bought in the 90s that have done well. It isn’t even your business per se. Your most valuable asset is you — specifically your ability to run a profitable company and make money.

Are you protecting that asset from the risk that a disabling illness or accident might prevent you from working? If you don’t have disability income insurance, you’re not protected.

What Are the Odds?

People generally think the odds of becoming disabled are low. But the numbers say otherwise: More than one in four 20-year-old workers become disabled before reaching retirement age. Here’s another reality check: Serious accidents are not the leading cause of long-term disability; chronic conditions are. Muscle and bone disorders (such as a back disorder or joint or muscle pain) are responsible for more than one in four disabilities.

How Long Could You Go Without an Income?

Even a short period of disability could be devastating. The average group long-term disability claim lasts 2.6 years. Even if you have reserves you 3 could tap, your personal finances would take a hit. If and when you were able to start earning an income again, you might have to start all over.

What Would Happen to Your Business?

Your involvement is vital to your company’s financial success. If you’re unable to work, you might have to hire someone to take your place and borrow money to pay the bills until you’re back on the job. Bottom line? If you’re sidelined by a long disability, it could jeopardize the success or even the survival of your business.

What Can You Do?

Call your financial professional to review and discuss this important issue.

Tax Tips for Businesses

Paper sheet in hand with magnifier, paperwork, consultant, concept business adviser, financial audit, seo analytics, auditing tax process, big data analysis, research report, market stats calculateAs a business owner, you should familiarize yourself with your federal, state, and local tax requirements. Understanding what your obligations are will assist you in filing returns and paying taxes accurately and on time. Whatever taxes you are required to pay, you have to be very aware that there are deadlines for remitting them and any delays on your part could result in penalties. Here are some tips that can help you avoid tax trouble with the IRS.

Employment Taxes

The IRS requires employers to withhold federal income tax and FICA (Social Security and Medicare) taxes from their employees’ wages. The IRS also wants you to remit these employment taxes, along with your company’s FICA contributions, to them in a timely manner. Failing to remit these taxes can lead to serious penalties for noncompliance. This is one issue you absolutely must stay on top of.

Remember, sole proprietors, general partners, and, usually, members of limited liability companies do not have Social Security and Medicare taxes withheld like employees do. Instead, they must pay self-employment taxes, which typically cover Social Security and Medicare.

Estimated Taxes

You must generally make quarterly estimated tax payments to cover self-employment taxes and income tax on income that is not subject to withholding. If you do not make required estimated payments on time, you may owe the IRS an underpayment penalty.

Misclassifying Workers

Employees and independent contractors are treated differently for income tax withholding and employment tax purposes. Generally, the more control you have over a worker’s tasks and hours of work, the more likely that individual is an employee. In the case of employees, you must withhold federal income tax and FICA taxes, pay your share of FICA taxes, and pay unemployment taxes. You are not required to withhold income or FICA taxes from an independent contractor. Independent contractors pay income taxes and self-employment taxes on their own. If the IRS determines that your business has misclassified employees as independent contractors, it could prove to be costly.

Keep Business and Personal Transactions Separate

Personal bank and credit card accounts should always be kept separate from business accounts. Doing so makes it easier to identify all appropriate business expenses at tax time. That, in turn, simplifies things when it comes to claiming business tax deductions.

Substantiating Business Expenses

Like every business, your company will incur various expenses that are simply the cost of doing business. Many of these business expenses will be deductible. You should have proof of purchase for those expenses that you intend to deduct. Proof can be a cancelled check (or a legible image of the check), or a credit card, debit card, or electronic funds transfer (EFT) statement that shows the payee, amount of purchase or transfer, and the date of the transaction.

It’s also important that you can provide an invoice or receipt that identifies the purchase. If it’s not clear what the business purpose for the purchase is, then you should attach a note of explanation or write directly on the invoice or receipt. This can be helpful if the deductibility of the purchase is ever questioned by the IRS. Deductions for business travel expenses have very specific substantiation requirements, so be sure you are familiar with them before claiming these expenses.

Determining what taxes your business is subject to and when those taxes must be remitted is complex. Unfortunately, errors can be costly to your business. A professional who specializes in small business tax and accounting matters can help your business put systems and procedures in place so that it can claim all the deductions it is entitled to and meet its tax obligations in a timely and accurate manner.

Keeping It SIMPLE

SIMPLE IRA written on a piggy bank.A SIMPLE IRA is an option for small business owners who do not currently have a retirement plan in place but would like to have one. This particular type of retirement plan has several attractive features that deliver significant benefits to both employers and their employees.

What It Is

The Savings Incentive Match Plan for Employees (SIMPLE) is a retirement savings plan targeted at employers with 100 or fewer employees who earn $5,000 or more in compensation. With fewer reporting and administrative requirements than other retirement plans, the SIMPLE plan is designed to appeal to employers with limited resources and personnel to handle benefit administration and compliance issues.

With a SIMPLE IRA, employees may make tax-deferred contributions through payroll deduction to traditional individual retirement accounts set up under the plan. In 2023, the contribution limit is $15,500 ($19,000 if age 50 or over). All account earnings are tax deferred until the plan participant begins withdrawals. Withdrawals from a SIMPLE IRA are taxed at regular income tax rates.

Employers appreciate the fact that a SIMPLE IRA is relatively easy to set up and operate. An annual report is not required, although certain documents must be distributed to inform employees about the plan.

Employers are required to contribute to the plan, either by matching employee contributions up to 3% of pay or by contributing 2% of each eligible employee’s compensation. The matching percentage may be lowered in some years.

Plan Benefits

  • Employee contributions are tax deferred
  • Employer contributions to employees’ SIMPLE IRAs are tax deductible
  • Account earnings are tax deferred
  • No annual filing requirement or discrimination testing

Potential Drawbacks

  • Employer contributions are required
  • No Roth contributions are permitted
  • Full immediate vesting (employee has ownership of all SIMPLE IRA money)
  • No loans permitted

Your financial and tax professionals can help you assess your retirement plan options

Five Steps to Keeping Employees Motivated

Businesswoman giving a high five to male colleague in meeting. Business professionals high five during a meeting in boardroom.Motivated employees typically perform at a higher level than employees who are disengaged from their work. They are willing to go beyond their job description to see a project through to completion. Very often, their enthusiasm inspires and pushes coworkers to excel.

Certain strategies can help foster a culture of motivation and enthusiasm within the workplace. When consistently applied, they can motivate previously disengaged employees while supporting employees who are already self-driven and motivated. Here are five such strategies.

Communicate Corporate Goals

Engaged employees work toward common goals. However, they need to see the big picture first, and it is up to you to paint that picture for them. You do so by communicating your expectations to them clearly and regularly. That involves spelling out the duties, responsibilities, and the objectives of each employee’s job, ideally when they first start working for you. You also need to explain how each employee’s efforts affect the company and its bottom line. The goals of your company must be aligned to the goals of the employees if all employees are to work together to make the company successful.

Identify What Motivates Employees

Try to understand the factors that drive each employee to excel and to deliver exceptional performance. You may find that some employees are motivated by external recognition or by a sense of personal achievement or satisfaction. Others may be motivated by money. Bonuses and other forms of incentive pay are effective monetary motivators. Non-monetary incentives, such “employee of the month” awards and special, reserved parking spots can appeal to employees who are motivated by external recognition.

Give Employees the Tools They Need

Follow through by ensuring that employees have the right tools and resources to do their jobs. In fact, ask them what they need to perform at the highest levels possible. Soliciting employees’ opinions empowers them.

Conduct Regular Performance Reviews

Performance reviews are an effective tool for tracking the progress of your employees in meeting their stated goals. They are also helpful in keeping employees motivated and productive. Consider scheduling performance reviews quarterly or even monthly instead of annually or biannually so that employees receive more consistent and regular feedback about their performance.

Provide Additional Training and Education

Give employees the opportunity to acquire additional skills related to their fields — sales, technical, mechanical, etc. Employees gain from the additional training by adding to their skill sets, and the business may gain from having a workforce with enhanced capabilities and a higher level of motivation.