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Greetings!
 | | Carson Thorn, CPA |
New Website Launched
We have officially launched our new website www.CarsonThornCPA.com. We encourage you to visit and see what is new. We are continuously adding new information to help you.
As always, we appreciate your referrals, and if you know someone who would like to receive our newsletter by email, please let us know, or refer them to our website, www.CarsonThornCPA.com.
Thank You!
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| IRS Scrutinizes Officer Salaries | |
To all owners of S-corporations, your salary may come under scrutiny from the Internal Revenue Service. The IRS appears to have taken the position that the salary (W-2 Wages) for an owner of an s-corporation should equal the salary earned by an employee working in a similar position, in your industry, and within your zip code. This only applies if your business earns enough profit to support the salary.
There are two web sites that appear to be helpful in determining the average salary for others working in similar positions to you. These are www.careerjournal.com and www.collegegrad.com.
Please call my Raleigh CPA office if you would like our help in deciding how to handle this issue.
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| Estate Taxes Might Not Affect You, but You Still Need a Plan | |
There's good news if you're concerned about estate taxes. For the next two years (2011 and 2012), the value of your estate that's excluded from tax is set at $5 million. And the top rate on taxable estates is 35%.
The $5 million exemption is per person, thus a couple's exemption is $10 million. Also notable in the law is the new portability of unused exemptions. Under prior law, couples frequently performed complex estate planning to take full advantage of the then $7 million exemption for couples. Now the law allows a deceased spouse's estate to transfer any unused exemption to the surviving spouse without all the complex planning.
So what should a taxpayer do to take advantage of the current rules? First, estimate the size of your estate and if you may be subject to taxes, consult us and your attorney for planning options. For example, you might consider taking advantage of the favorable gifting and generation skipping tax exemptions by making tax-free gifts to planned beneficiaries now. It's important to realize that not only will planning for these events minimize potential estate tax, but also you will be preserving assets for your family.
If your estate is under the tax threshold, don't assume that you can just ignore estate planning. If you have a plan in place, you should review and update it at least annually. First, your financial situation might have changed. Or there could be changes among your heirs or beneficiaries. Think of all the births, marriages, deaths, and divorces in your extended family during the last year.
If you don't have an estate plan, establish one as soon as possible. A plan is not just about avoiding estate taxes. At a minimum you need the following:
* A will or trust to specify who will inherit your assets and to appoint a guardian for any minor children.
* A medical directive or "living will."
* Health care and financial powers of attorney.
* Updated beneficiary designations for insurance and pension assets.
For help calculating the value of your estate, or to learn more about how estate taxes might affect you, please contact our Raleigh, NC Tax Planning office.
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| Consider the Time Value of Money in Making Business Decisions | |
Suppose you're selling your Raleigh, NC small business, and it's worth $400,000. You're offered $210,000 down and lump sums of $100,000 at the end of year one and year two. Should you take the offer?
Most people know that $1,000 now is worth more than $1,000 a year from now. Here's why:
1. Inflation: In a year, a dollar will buy less than it would today.
2. Risk: Over time, the risk increases that some of the money owed you will not be paid.
3. Opportunity loss: Funds on hand could be invested and earning more money.
Present value analysis attempts to quantify these variables. It discounts the value of future funds by estimating inflation rates, risks of loss, and rates of return from alternative investments.
Assume you could earn 2% by investing in a $100,000 CD. Disregarding compounding, in a year your investment would be worth $102,000. Conversely, if you postponed receipt of $100,000 for a year and inflation eroded the principal by 3%, you'd receive the equivalent of $97,000 in today's dollars. (Note that with 3% erosion, even the $102,000 CD proceeds would be worth only $98,940 in today's dollars.)
In the opening example, your proposed "investment" (a two-year $200,000 note receivable) would be far riskier than a CD. To compensate, you might decide not to accept anything less than an 8% return. A present value table indicates that at 8%, the discount factors for one and two years are .926 and .857, respectively. $100,000 times .926 is $92,600; $100,000 times .857 is $85,700.
Thus, in today's dollars, the buyer is offering $388,300 ($210,000 down payment plus $92,600 plus $85,700). Since your business is worth $400,000, you would be selling for $11,700 less than full value.
A similar analysis can be applied to any business transaction involving future payments. For help with the calculations or assistance with any of your business needs, call our Raleigh, NC Small Business CPA Firm for an appointment.
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Thank You for Your Referrals!
We Value Your Continued Support
We appreciate you as a client, and we depend on you as much as you depend on us. Your referrals have helped us grow our business and are greatly appreciated. If you have a friend or associate who is in need of our services, please call our office to request a referral form. We will continue to offer exciting rewards for every referral who becomes a monthly client. Please contact our office for more information. Thank you!
Sincerely,
Carson Thorn
C.E. Thorn, CPA, PLLC
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| Client Success |
"Over ten years and growing strong"
I have been the owner of a growing electrical business for almost twelve years. Carson Thorn, CPA, P.C. has been my accountant for over ten of those years. His firm has helped with my accounting, corporate and personal income taxes and payroll for that entire time. He has always been accessible and very willing to answer questions. He is extremely reliable-I am glad he is my CPA.
M.M., Electrician
Cary, NC
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