Big Changes to Workers’ Compensation Reporting

You may, or may not, be aware of recent changes in the way you will pay your premiums to the Ohio Bureau of Workers’ Compensation.  If you are aware of these changes, you’re way ahead of most business owners.  If not, this narrative is designed to provide you with the basics of the change that takes effect July 1st. Please read on…….

CHANGE IN WORKERS’ COMPENSATION

The Ohio Bureau of Workers’ Compensation will be transitioning to a new prospective billing system on July 1, 2015. Payment for workers’ compensation will now be due to the State of Ohio before coverage will be extended. This is a change from the current billing system in which you pay for the six months of coverage in arrears on a semi-annual basis.

PAYMENT OPTIONS

All employers will start on a bi-monthly payment plan. This new system will allow you flexibility in your payment options, which can now be done on an annual, semi-annual, quarterly, bi-monthly, or monthly basis. If you wish to change your installment plan, you have until July 15, 2015 to make the selection online through your account at https://www.bwc.ohio.gov/  or by calling 1-800-644-6292.

RISK WITH BI-MONTHLY PAYMENTS

Keep in mind that the biggest risk with paying the premium more often is that it gives you additional opportunities to lapse coverage during the policy period due to no-payment.   The BWC will bill you dollar for dollar for the costs of any claims during lapsed coverage.  So, timely payment of premium is extremely important.

TRANSITION PERIOD

The transition period for the change began January 1, 2015 and ends August 31st.  As long as you are in active status with the BWC on July 1, 2015, the State has waived your obligation to pay that premium and will now require you to pay your initial premium under the new reporting requirements on August 31th, 2015 for the two month period ending October 31, 2015. The payment will be estimates based on your 2014 payroll that the Ohio BWC will provide to you.

ANNUAL REPORTING REQUIREMENT

The annual reporting period for all employers, regardless of frequency of payment, is July 1st to June 30th.  Starting July of 2016 and every July thereafter, you will be required to file a payroll “true-up report” with the Ohio BWC comparing your actual payroll for that policy year to the estimated payroll provided by the Ohio BWC. Additional premium due, or overpayment, resulting from the reconciliation will be payable or refundable at that time.

 PENALTY AND INTEREST

Failure to file and/or pay an installment will result in lapsed coverage as well as penalties and interest. Failure to file the annual true-up report AND pay the outstanding balance timely will result in removal from all employer discount programs and rating plans.

As always, we are here to help you.  Please contact us at (614) 261-0600 with any questions or concerns you may have.

 

 

 

Advantages of Using Life Insurance in Business Succession Planning

Kelley A. King, CLU, ChFC

VP, SG Financial Services, LLC

You have lived and died with the family business. Well, the “died” part may be an exaggeration. Nonetheless, you have poured your life into the business and nurtured it to be what it is today. The questions are: What do you want it to be tomorrow? Not just tomorrow, but after you are gone. Will the business go on after your heart stops beating? Do you want it to? Who will own it? Who will run it? Who will benefit from its value? These questions are just a part of the Business Succession Process and should be addressed in concert with other issues. By applying Financial Modeling tools, you can assure a balance between your personal needs and the needs of the business. This article will address one of the questions – Should Life Insurance be used as part of the overall plan?

While life insurance is not the solution to every problem, as some insurance people think, it can be an extremely effective tool in a business succession plan. Structured properly, it can provide income tax dollars which can be used in a variety of ways. It can supply tremendous leverage. For a “few dollars” of premium an insured can obtain thousands of dollars of life insurance coverage. In this situation I believe no other investment provides a “payoff” like life insurance. Here are some of the common ways in which life insurance can be integrated with many of the tools, techniques, and strategies commonly used in business succession planning:

Funding a Buy-Sell Agreement

Having a buy-sell agreement is essential. Having funds in the hands of the buyer when needed is critical as well. If funds will be needed to fund a buy-out at death, the alternatives to life insurance include:

  • Establishing a sinking fund ahead of time
  • Taking capital out of the business
  • Making installment payments.

Note that all three of these alternatives require expensive “after-tax” dollars. The life insurance option can guarantee complete financing of the purchase from the beginning.

In a properly structured arrangement life insurance proceeds will be received income tax free. These funds can be used to fund the purchase of shares. The advantages include:

  1. Allowing valuable capital and cash flow to be kept in the business.
  2. Keeping the surviving owner from having to make costly installment payments (including interest) with after tax dollars.
  3. Assuring the surviving family can receive nothing less than a fair value for the business immediately. This eliminates the surviving family being dependent on the future success of the business. It also assures the active shareholder’s obligation to the surviving family is satisfied.

The selection of the right form of buy-sell agreement is critical for a variety of tax and non-tax reasons and is beyond the scope of this article. You can have the perfect agreement, but without cash to fund the purchase, it is not going to work.

Estate Equalization

In many families, not all of the children will be interested in or suited to take ownership of the business. If the business goes to the children active in the business, what about the others? Is that “Fair”? A business owner can use life insurance to provide for those children who are not involved in the business. By passing the business to the active children and providing for the inactive children with life insurance, you can equalizes inheritance for all of the children. This relieves the active children from having to purchase the interests of the inactive children — perhaps at a time when the business may be unable to afford it. It also allows you a way to provide for all of your children in a fair and equitable manner.

Estate Liquidity

For many family business owners, their business is their largest asset. If the business owner’s estate is large enough, there may be estate taxes payable at death. Life insurance can provide the cash needed to pay the estate taxes. This can be helpful since the business interests cannot readily be liquidated. Life insurance should be owned “outside of the estate” so that it does not cause additional estate taxes. For example, an Irrevocable Trust can be the owner and beneficiary of the life insurance policy. Also, if funds are not needed until the death of the second spouse, then less costly Survivorship Life should be considered.

Key Person

Most family businesses have family and or non-family employees that are important to the continued success of the business. To protect against the financial loss due to the death of a key employee, the company can purchase key person life insurance. Think about a founder who is key to the company’s success or a top salesperson. Losing that person would result in the loss of considerable income in the short term. Key person insurance protects the business and will compensate for that loss and help the business rebuild.

Compensation and Incentive Plans

As owners transition ownership and management of a business, attracting and retaining key employees is essential. This often involves developing compensation plans that will incentivize employees and increase the probability of them staying with the business. This can be done through stock ownership and other synthetic forms of ownership. Also, Nonqualified Deferred Compensation Plans can be used to provide benefits on a selective and discriminatory basis. These plans are designed to provide death, disability and retirement benefits. Life insurance is a popular vehicle for informally funding these plans because it offers tax-deferred cash value growth and tax-free death benefits.

Closing

It is beyond the scope of this article to delve into all of the advantages, disadvantages, and specific aspects of structuring, obtaining, funding and managing life insurance. These issues should all be addressed by qualified legal, accounting, and life insurance professionals that are working together. Life insurance is not the “end-all” of business succession planning, but it can be an extremely valuable part of an overall plan. My advice – Don’t let the life insurance tail wag the dog, but don’t ignore the life insurance tail.

 The author, Kelley A. King, is VP at SG Financial Services, LLC, a wealth management and insurance services firm headquartered in Worthington, Ohio. For more information and to contact the firm, please call 614.261.0600 Ext 119 or visit www.schiffmangrow.com.

This article is intended to provide a general overview of important estate and business succession concepts. Neither SG Financial Services, LLC, nor its representatives, provide tax or legal advice, and strongly urge you to seek a qualified attorney when planning or implementing any tax planning strategy. These concepts can involve securities. They may involve the use of life insurance, which is not FDIC or SIPC insured, and are subject to the claims paying ability of the issuing carrier. Life insurance products may contain limitations and exclusions. Pricing provided is based on a point in time, and is subject to financial and medical underwriting.

Securities offered through Valmark Securities, Inc., Member FINRA, SIPC. Investment Advisory Services offered through Valmark Advisers, Inc., an SEC Registered Investment Advisor. 130 Springside Drive #300, Akron, OH  44333-2431  1-800-765-5201, SG Financial Services LLC is a separate entity from ValMark Securities, Inc. and ValMark Advisers, Inc.

2014 Income Tax Update

I have a new cat at home.  A kitten, actually, that was found by the side of the highway late last fall.  She’s nice, but apparently is programmed to wake up at 4:45 most mornings, which means I no longer need an alarm clock.  There isn’t much going on that early, aside from infomercials about how I can lose weight with minimal effort, and some about how to grow hair.  I probably should consider watching, but instead I look at recent and proposed changes in tax regulations, and how they may impact clients.

At the federal level, it’s been relatively quiet for the first five months of 2014.  There were a number of popular provisions that expired at the end of 2013, but work is underway to extend many of them.  For example:

  • Under Code Section 179 taxpayers are now limited to a deduction of $25,000 for qualifying items.
  • Payments for mortgage insurance premiums in 2014 are not deductible.
  • Bonus depreciation is no longer available for new assets.

In April the Senate Finance Committee approved an Act that will restore many of the expired benefits.  Key changes include an increase of the Section 179 deduction limits to $500,000 for 2014 and 2015, and the restoration of the mortgage insurance deduction and bonus depreciation rules.   There’s another 40 or so extensions included in the Act, but unless you have a mine rescue safety program in place or are importing rum to Puerto Rico or the Virgin Islands, most of them won’t apply.

The Ohio legislature has been much more active, particularly in the past few weeks.  There have been two proposed changes that will impact nearly everyone that pays income tax in Ohio.

  • A nine percent income tax cut has already been approved for 2014 and beyond, and the current proposal increased the cut to ten percent. While not large, it will save taxpayers money.
  • The Ohio Small Business Deduction would increase from 50% in 2013 to 75% in 2014. This allows an owner of an Ohio small business to eliminate up 75% of income from their return, which can lead to significant savings. For example, a taxpayer that files a joint return and has $250,000 of Ohio sourced business income can deduct $187,500 of that income. At a tax rate of 5% that’s $9,375 in tax savings.

The increase of the Small Business Deduction to 75% would be for 2014 only….at this point.  It’s a huge savings for small business owners, and the ruling party loves to throw tax breaks their way.  Don’t be surprised if this gets extended into 2015 and beyond.

Keep in mind that the changes discussed here have not yet been enacted, but is seems likely that they will be.  All will be retroactive to January 1, 2014.

If you have any questions about any of these proposed changes, please give me a call or send an email.  Don’t worry if it’s early in the morning, the kitten is showing no signs of slowing down.  Maybe I can use those early morning hours to become an expert in Virgin Island rum importing?

 

Michael Merna

 

Kristen Waryck joins the Schiffman | Grow team

Schiffman | Grow & Co., a central Ohio accounting and business consulting firm, is pleased to announce that Kristen Waryck has become a member of the accounting team as a staff accountant.  Kristen is a recent graduate of Miami University, and is nearing completion of the MBA program at Urbana University.   She has prior work experience helping churches with their financial reporting, and has about six months experience in public accounting.  She plans on sitting for the CPA exam in 2014.

“We feel fortunate to have Kristen joining Schiffman Grow at this time,” said managing partner Todd Grow, CPA.  “She will be working primarily with our business clients, helping them with their bookkeeping and financial statements during tax season, and we are confident she will provide excellent service.”

 

Brandon Schilling joins Schiffman | Grow & Co.

Schiffman | Grow & Co., a central Ohio accounting and business consulting firm, is proud to announce that Brandon Schilling has joined the firm as a staff accountant.  Brandon comes to Schiffman | Grow & Co. after a year with the Ohio Department of Taxation, where he helped businesses with commercial activity tax, payroll withholding, and sales tax problem resolution.  He has also worked with the South-Western City School District as a GED instructor.

“Brandon has shown to be an outstanding communicator, and his prior work experience should be a great asset,” said Michael Merna, CPA.  “We are excited to have him on the team, and are looking forward to having him working with our clients.”

He has a bachelor’s degree in mathematics from Ohio Dominican University, a master’s degree in education from Ohio University, and a master’s degree in accounting from Franklin University.  He currently resides in Hilliard, Ohio.

We have a new Website!!

After months of development, photo shoots trying to make accountants look presentable, content editing, photo-shopping pictures of accountants, and final revisions, the new Schiffman | Grow & Co. website is up and running.  Although the web address is the same, pretty much everything else is brand new.  Hopefully you will like what you see.