CPA Blog

Consider key person insurance as a succession plan safeguard

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Published: Tuesday, 04 April 2017 16:28

Written by Phillip Strickler, CPA.CITP

In business, and in life, among the most important ways to manage risk is through insurance. For certain types of companies — particularly start-ups and small businesses — one major threat is the sudden loss of an owner or hard-to-replace employee. To safeguard against this risk, insurers offer key person insurance.

Under a key person policy, a business buys life insurance covering the owner or employee, pays the premiums and names itself beneficiary. Should the key person die while the policy is in effect, the business receives the payout. As you formulate and adjust your succession plan, one of these policies can serve as a critical safeguard.

Costs and coverage

Key person insurance can take a variety of forms. Term policies last for a specified number of years, typically five to 20. Whole life (or permanent) policies, which are generally more expensive, provide coverage as long as premiums are paid, and they gradually build up cash surrender value. This value appears on a business’s balance sheet and may be drawn on, if the business needs working capital.

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2017 Q2 tax calendar: Key deadlines for businesses and other employers

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Published: Tuesday, 04 April 2017 16:08

Written by Juan Andrade, CPA

Here are some of the key tax-related deadlines affecting businesses and other employers during the second quarter of 2017. Keep in mind that this list isn’t all-inclusive, so there may be additional deadlines that apply to you. Contact us to ensure you’re meeting all applicable deadlines and to learn more about the filing requirements.

April 18

• If a calendar-year C corporation, file a 2016 income tax return (Form 1120) or file for an automatic six-month extension (Form 7004), and pay any tax due. If the return isn’t extended, this is also the last day to make 2016 contributions to pension and profit-sharing plans.
• If a calendar-year C corporation, pay the first installment of 2017 estimated income taxes.

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Offer plan loans? Be sure to set a reasonable interest rate

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Published: Wednesday, 29 March 2017 16:59

Written by Phillip Strickler, CPA.CITP

Like many businesses, yours may allow retirement plan participants to take out loans from their accounts. Such loans are governed by many IRS and Department of Labor (DOL) rules and regulations. So if your company offers plan loans, your plan document must comply with current laws — including setting a “reasonable” interest rate.

Agency perspectives

Neither the IRS nor DOL provides a set percentage for plan sponsors to use. Yet both require the rate to be “reasonable.” The IRS asks if the interest rate is similar to local interest rates and to what local banks charge individuals for similar loans with similar credit and collateral. Meanwhile, DOL regulations say that an interest rate is reasonable if it’s equal to commercial lending interest rates under similar circumstances.

The DOL provides several examples of how to determine the interest rate. For example, suppose the plan loan interest rate is set at 8%, but local banks offer between 10% and 12% for similar circumstances. In this example, the loan will fail to meet the reasonable standard.

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Who can — and who should — take the American Opportunity credit?

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Published: Wednesday, 29 March 2017 16:24

Written by Imelda Moreno, CPA

If you have a child in college, you may be eligible to claim the American Opportunity credit on your 2016 income tax return. If, however, your income is too high, you won’t qualify for the credit — but your child might. There’s one potential downside: If your dependent child claims the credit, you must forgo your dependency exemption for him or her. And the child can’t take the exemption.

The limits

The maximum American Opportunity credit, per student, is $2,500 per year for the first four years of postsecondary education. It equals 100% of the first $2,000 of qualified expenses, plus 25% of the next $2,000 of such expenses.

The ability to claim the American Opportunity credit begins to phase out when modified adjusted gross income (MAGI) enters the applicable phaseout range ($160,000–$180,000 for joint filers, $80,000–$90,000 for other filers). It’s completely eliminated when MAGI exceeds the top of the range.

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