Archive for July, 2010
Fidelity Bonds
Many businesses, from the one-person sole proprietorship to giant corporations, carry insurance policies against fraud in the form of a fidelity bond, generally referred to simply as “bonding.” A fidelity bond can cover every kind of loss from routine theft and embezzlement to commercial bribery and stock fraud.
If a customer sues your company for failure to deliver stolen goods or for other reasons related to the bonded employee’s dishonesty, the insurance will cover defense costs. The bond may also cover loss of earnings sustained as the result of theft of the company’s customer, applicant or employee lists.
Optional coverage may include losses from:
- counterfeit paper currency or money orders;
- forged deposits;
- forged credit cards; and/or
- computer forgery.
The burden of proof is on your company to show that the fraud caused the losses claimed. These policies do not reimburse unexplained inventory losses or pilfered cash accounts without a suspect. Generally a police report is required.
Fidelity bonds almost always include a subrogation provision. Subrogation requires that, if the insurer pays your company’s claim, your company gives the insurer the right to sue the wrongdoer. You cannot interfere in any way with the insurer’s right to sue and cannot agree to any settlement with or release of the dishonest employee unless the insurer consents.
e-File – Keep Paper Copies
E-filing returns is faster and helps eliminate mistakes. Whether you e-file returns directly on an Internal Revenue Service site or through a software program like QuickBooks©, be sure to keep paper copies for your files and for your CPA. The IRS e-system often gives IRS auditors an incomplete view of the return. As a result, auditors often begin by asking taxpayers for hard copies of information they already provided to the IRS. To avoid problems, keep hard copies.
Hire Your Child
If you are a small business owner there could be many financial benefits to hiring your child. If your business is a sole proprietorship, you pay no payroll taxes on your child’s wages if that child is under age 18. Your child could pay no payroll taxes and no federal income taxes if wages do not exceed the 2010 standard deduction of $5,700 for a single taxpayer.
Record keeping is crucial. You need accurate records showing hours works and tasks performed. The wages must be reasonable – what would you pay someone else? Keep records showing the wages were actually paid to your child.
Be sure to check with your CPA before hiring your child to understand the implications for all federal and state taxes you and your child may incur. Other rules govern corporations, partnerships and limited liability companies (LLCs).
Should I Convert my Traditional IRA to a Roth IRA?
Recent tax law changes have made it possible to convert your traditional IRA to a Roth IRA. As of January 1, 2010, the income requirement for conversions or rollovers of traditional IRAs to Roth IRAs has been eliminated.
But just because you can do something does not mean you should do it. There are always pros and cons. There are also many factors to consider when making this decision. How old are you? What is the amount of the investment and how is it invested? Will the funds be needed for retirement income or will they be part of the estate? How would the conversion affect your tax situation and retirement and estate planning.
You should always discuss decisions like these with your CPA and financial planner.
