Wills Are Not Enough for Business Owners

brand1-e1383682355561Most business owners will leave the business they own to their family in their will. Before those with large estates do that however they have a few important questions to think about and answer about that will. First, do their heirs have the money to pay the estate taxes on the value of the business? Next, do their heirs know what the business is worth?

Business Owners Need to Value the Business

The owners will need to find the answers to those questions because their heirs either don’t know what the value of the business is or aren’t interested in what it is. Here’s the challenge though, when it comes time to assess the value of the estate of the owner, the IRS will tell the heirs what the business is worth. Then they’ll want taxes paid on that value. Do they have the money to pay those taxes?

When it comes to the valuation process, naturally to avoid a higher estate tax bill the heirs will want the IRS to put a lower value on the business while the IRS will want to put a higher value on the business. Guess who usually wins out?

Many times heirs will have to sell homes, stock or other assets to pay that estate tax bill. Worst case scenario they may have to borrow money or even sue remaining partners to satisfy the IRS. This is not what the owners wanted to do to their loved ones and their former partners.

So how do owners figure out what their business is worth? The following are the most common methods used to value a business:

  • Book Value
  • Straight Capitalization Method
  • Capitalization of Earnings Method
  • Years’ Purchase Method
  • Discounted Future Earnings Method

Solutions with a Fully Funded Buy Sell Agreement

These methods of valuation answer the question of what the business is worth but leave another one unanswered. Namely, how do you set aside money to pay the estate taxes based on the value of the business?

In many cases the answer is, by setting up a guaranteed fully funded buy sell agreement (http://en.wikipedia.org/wiki/Buy-sell_agreement ).This is an agreement where the terms are laid out what happens to a business should something happen to one of the owners. As part of the agreement it looks to put a value on the business and determines a way to pay for it.

 Need for Updated Business Valuation

Here’s a challenge for business owners when it comes to valuing their business with the buy sell agreement. Simply put, the value changes. The business owners started 20 years ago is worth more today than it was 20 years ago.  And since most owners don’t know when they will create their estate for the IRS to value, they should look to update the value in their guaranteed fully funded buy sell agreement every few years or so. Remember the IRS will want taxes to be paid by the heirs based on what the business is worth and if the heirs don’t have the money to pay that estate tax bill, problems arise.

Are Heirs Qualified to Run the Business?

Finally, is a partner’s spouse or children qualified to take over the business if they pass away? Again, the buy sell agreement can spell out what happens to the business if one of the owners passes away. This even applies if the business is owned by one person.

Wills are a great way to start the process of transferring a business to loved ones and friends however there are a few gaps with it that can be filled by a guaranteed fully funded buy sell agreement. Working with a qualified and licensed insurance advisor and other team members can go a long way in filling those gaps.

 

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What Are the State Income Tax Rates for Each of the 50 States?

Colorful USA map with states and capital citiesRecently, a friend of mine asked about the state income taxes she would have to pay for the state she was moving to from New York. It’s a question that comes up every so often. In this particular case and others, she wasn’t sure if she was going to have to pay more in income taxes or less in the new state.

I did some research and gave her the information but the question opened up a question as to what the income tax rate is for each of the 50 states. So in doing some more search I found some helpful information. Information that lets movers know what happens to their take home pay at the state level when they move from one state to another.

Here’s a link to the state by state breakdown:

http://www.money-zine.com/financial-planning/tax-shelter/state-income-tax-rates/

It’s also worth noting that if the move involves the same employer, the human resources department needs to be made aware of the state move to make sure the proper taxes are adjusted to avoid future potential problems.

 

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Starting a Business

408611g3ehbfo67Are you dreaming about starting a business? Many people do. Starting a new business is exciting and demanding. Anyone that chooses to take on the hurdles of doing it have to be willing to juggle any number of opportunities and challenges at the same time. If it’s done right however, it can be very rewarding and gratifying.

Surround the Business with a Positive Environment

For starters, aspiring entrepreneurs want to make sure they keep themselves in a positive and encouraging environment. That environment doesn’t simply include the space they work out of, however. It includes family, friends, business partners and employees, just to name a few. They need to support them and the business.

It also includes healthy, positive living. Diet, exercise and personal time are part of that. This is important because when difficulties do come up, that environment needs to support the efforts of the business owner. Without it, it’s just more headaches for them to deal with.

Be Passionate About the Business

That environment goes hand in hand with the owners’ passion for what they’re doing. If owners are not passionate, then they may simply give up on everything at the first sign of problems.

For those aspiring entrepreneurs that are unsure about what they’re passionate about, figuring it out can be simple. I’ve found that if they simply ask themselves honestly, “What would I do every day if I had $10 million?” They would know what they’re passionate about. And again, that passion will carry them through the tough times.

Dealing With the Tough Times

Those tough times for many owners come very early on in the process. What or who is, the right financing, the right marketing plan, the best employees, the ideal clients. Have I saved enough money to make this work long term? These are just some of the challenges involved with starting a business. As the experience evolves, the triumphs and setbacks present new challenges that have to be handled.

So if you’re considering starting a business make sure you create the best environment for the business to flourish. That includes being in a positive and passionate space. It involves knowing your business backwards and forwards and it means being prepared to change along with the circumstances in order to keep the business going. Making all of this work harmoniously will lead to long-term success for the owner and the business.

 

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Make Political Donations Part of Your Financial Plan

Do you make giving to politic47152wn6unnf73bal campaigns part of your overall financial plan? Government plays a critical role in our daily lives. The scope of that role can include monitoring the quality of the air that we breathe, maintaining the strength of the military that protects us or funding the care provided by Medicare and Medicaid. Government also strikes partnerships with the business community to help meet our collective needs.

What do You Want Government to Do?

For many Americans, the critical role of government and their relationship with business is a great association. They believe it’s a link that should continue into the future and evolve to meet the countless needs of our democracy. Others however think that role should be reduced as much as possible.

Whatever a voter’s belief in the role of government, it is a system that needs financial support. Support that is needed at the local, state and federal level.

Plan Political Donations like other Life Goals

Like planning for college, retirement or starting a business, political giving can fit in the financial planning of American voters. The giving can be done on a periodic basis or on an occasional basis. Regardless of how it’s done though putting together a plan with a financial advisor can go a long way in enhancing not only the lives of the giver but the efforts of the candidate they support.

Contributors can look for causes they care about. A strong business focus, caring for the homeless, reducing taxes or insuring that everyone is covered by medical insurance. Whatever the cause, supporting candidates that believe in those causes can add a lot to the overall satisfaction of the donor along with our democracy.

Choose How Much to Donate and When

Once donors have chosen the campaigns to contribute to they can decide on what the dollar amount will be on a regular or periodic basis. That amount of course should work within the overall financial budget. If not financial problems could develop down the line.

Again, this support can start at the school board level or it can go as far as a national campaign. The important part is to keep in mind that elected officials also respond to those who donate to their campaign. By giving on a consistent basis voters can let their voices be heard.

Political donors throughout the country care about a number of issues that affect our society in either a small or big way. The best way to have their voice heard is not only contacting their politicians but also giving to their campaigns. When it comes to having an overall financial plan to do that, once necessary bills are paid, giving to political campaigns can help enhance the life of not only the giver but the politician that is receiving the donation.

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