Jay Sachetti joined Jeff O’Brien, partner at Husch Blackwell and Dyanne Ross-Hanson, president of Exit Planning Strategies talked about the market for mergers and acquisitions, exit planning opportunities for companies that don’t end up for sale and how companies can maximize their eventual sale price during an early October panel at the first Upsize on Tap event at Summit Brewing Co. in St. Paul.
When the state Legislature passed a law requiring employers to provide paid leave and safe time for employees, Justin Bieganek started hearing differing details from friends, colleagues and peers.
Bryan Borhoft,
HG&K Ltd.:
952.979.1153
bb*******@****pa.com
www.hgkcpa.com
Jeff Brown,
EideBailly LLP:
952.918.3558
jb****@********ly.com
www.eidebailly.com
Lurie Besikof
Lapidus & Co.:
www.lblco.com
David Stene,
EideBailly LLP:
952.918.3518
ds****@********ly.com
www.eidebailly.com
Many business owners are searching for ways to increase tax deductions, especially with the threat of tax rate increases, and to rebuild their battered retirement savings, after painful market losses of late. Cash balance pension plans are an excellent means of achieving both goals.
So write consultants in the actuarial and benefits department of Lurie Besikof Lapidus & Co. in Minneapolis. They expect the number of such plans to increase in the months ahead, and offer these pros and cons to help business owners determine whether such arrangements are a good fit.
The big tax deductions provided by cash balance pension plans are the primary driver of their popularity.
The maximum deductible contribution to an individual’s 401(k) profit-sharing accounts in 2011 is $49,000 (or $54,500 for individuals over age 50). A cash balance pension plan, alone or in combination with a 401(k) profit-sharing plan, can dramatically increase the deductible contributions.
The Lurie Besikof Lapidus consultants offer this example: The owners of a dental practice wanted to set up a retirement plan to allow them to make large tax deductible contributions while minimizing additional staff costs. The following proposal was created to compare a 401(k) profit-sharing plan to a 401(k) profit-sharing plan with a cash balance pension plan.
From these proposals, two advantages of Design 2 were clear to the dental practice owners. Adding a cash balance pension plan increased their annual deductible contributions by approximately $206,000 with only $8,000 in additional staff costs. This also meant that their annual retirement savings increased by about $200,000, or 200 percent, over having only a 401(k) profit- sharing plan.
And while the focus of the proposed plan design was maximizing the owner’s benefits with minimal staff costs, staff members would receive meaningful benefits that were higher than Design 1.
Another appeal of cash balance pension plans is their simple look and feel, compared to other pension plans, write the consultants. Benefits accumulate in a (hypothetical) account that receives annual allocations, or “pay credits,” and investment earnings on their prior year’s balance, or “interest credits.” Employees can see benefits accumulate on their annual statements like their 401(k) profit-sharing plan balances.
One more advantage: Benefits are highly portable. Employees are allowed to roll over their cash balance account out of the plan and into their IRA when they leave employment.
With states including Minnesota facing budget shortfalls in record numbers, sales and use tax enforcement activity is on the rise, according to Jeff Brown, EideBailly, the accounting and business advisory firm in Bloomington. This increased activity is observable in two ways:
Nexus inquiries are up, to determine whether companies not currently registered to collect sales and use tax in a state should be. (“Nexus” means the requirement for a seller to collect and remit tax.)
Audit activity is rising, too, to ensure that those already registered to collect and remit sales and use tax in a state are, in fact, doing so in the proper amounts.
Potential nexus for sales and use tax purposes is typically determined via surveys asking a number of detailed questions concerning the taxpayer’s activity in the state, Brown writes.
These questions range from obvious things, such as whether the taxpayer’s employees or other representatives ever enter the state, and if so, for what reason; to more marginal things like telephone listings in the state, advertising activities, contracting with third parties for installation and warranty work, or even attendance at trade shows, according to Brown.
Recently, these nexus surveys have been outsourced by several states to very persistent private businesses. If your company receives such a survey, immediately provide a copy for your advisers and a second copy to work on draft responses, Brown advises. Do not complete and return these surveys without the advice of an accountant or attorney, as the way a question is answered may raise a red flag.
In situations where a taxpayer knows they have nexus in a state but have not been filing, there are often amnesty programs to reward those that come forward. These taxpayers generally have limited tax exposure and interest, but no penalties, according to Brown.
The best defense to sales and use tax audits is a good offense, writes Brown. He offers the following best practices that companies should consider following:
Be sure that your accountant or attorney knows where you are doing business and, more importantly, exactly how you are doing it.
Become educated in the sales and use tax rules in each jurisdiction where you’re doing business.
If you have exposure in a given state, consider amnesty programs or an anonymous settlement offer.
Review your procedures for identifying taxable sales and get proper documentation to substantiate nontaxable sales.
Ensure that payables and procurement employees are educated in the use tax rules to minimize future use tax problems.
Each state and the IRS provide guidelines for classifying employees (direct hire) and contract-for-hire or freelance workers, according to Bryan Bornhoft, HG&K Ltd. in Minnetonka.
It’s important to get this right, because penalties for misclassifying can be high.
These guidelines are based on the following three criteria:
1. Behavioral control relates to the business owner’s ability to dictate how, when and where work is performed. For example, if a worker is expected to be at the employer’s primary place of business from 9 a.m. to 5 p.m., Monday through Friday, it would satisfy the behavioral criteria for employment. Contracted workers are not necessarily subject to specific hours in the day or a certain place to perform their work.
2. Financial control can relate to a concentration of work (compensation) from one specific employer. For example, if a worker is dependent financially on one source of income, without other sources, a concentration may exist and be evidence of financial control. On the other hand, if a worker spends six months on a project, but is working for other companies simultaneously, financial control may not be evident.
3. Finally, the relationship of the employer and worker can also support classification. If the worker has a contract that outlines the nature of the work, a beginning and end date and rate of pay – and if the worker has the potential to make a profit or have a loss – the relationship can be argued as contractual.
Get it in writing, Bornhoft advises. One of the main things that distinguishes a contractor is that this person is dictating much of the employment situation – the hours worked and place of work, the fee or rate and the start and end date.
Make sure the nature of the work is outlined in a contract. Without a written and signed contract that specifies the behavioral, financial and relationship criteria, classification can be left to interpretation by the auditing team or regulatory agency.
Provide proper docs, Bornhoft writes. Auditors will review the documentation of workers to make sure that employers are properly classifying and reporting them.
All business owners who survived the recession (at least the first one) did so by reviewing their organizations top to bottom and making necessary changes. But now is not the time to stop such effort, believes David Stene, EideBailly, Bloomington.
A continuing top-to-bottom review of overhead, operating costs and processes is essential even as the economy gains ground – and especially if it continues to fizzle.
The following list of opportunities can help in this review, Stene writes. Consider each issue in your company and then estimate the annual cost/savings for each if it were appropriately addressed. Those processes with the biggest impact should be given the highest priority, of course. What is your total? Many businesses find savings potential of 10 to 20 percent of annual sales, according to Stene.
1. Remove poor-performing staff.
2. Remove unprofitable customers.
3. Remove waste in the sales process.
4. Remove waste in the production or manufacturing process.
5. Reduce overhead.
6. Achieve or exceed budgets.
7. Remove inefficient suppliers.
8. Increase average sales per customer by 20 percent.
9. Improve cash collection by 20 percent.
10. Improve other processes particular to your company.
