[vc_row][vc_column][vc_column_text]We get it – Nobody wants to hear from the IRS…So, how can Ark Financial help you minimize that possibility?

We’re going to help you avoid 10 common tax traps in these areas:

1. Taking Cash Out of the Business

2. Buy-Sell Arrangements

3. Deferred Compensation Arrangements

Be proactive – Not reactive.

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Taking Cash Out of the Business

Tax Trap #1: S-Corporation Owner Bonuses

  • A bonus may subject an S-Corp owner to Social Security and Medicare (FICA*) taxes
  • Solution? S-Corporation Distribution: S-Corp shareholder-employees must receive a reasonable salary and pay payroll taxes on it.

Tax Trap #2: C-Corporation Owner Loans

  • “Loan” may be: Disregarded and Considered a “Below-Market Loan”
  • Solution? Ensure formalities are followed and loan is arms-length>

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Buy-Sell Arrangements

Tax Trap #3: Triggering Capital Gains Tax

  • No Step up in basis for surviving owners: Share values increase, but basis does not; Potential adverse tax consequences if lifetime sale.
  • Solution? Cross-Purchase Arrangement

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Tax Trap #4: Triggering Corporate Alternative Minimum Tax (AMT)

  • Life insurance proceeds could trigger the AMT
  • Solution? Purchase additional death benefit to cover an AMT

Tax Trap #5: Exposing Life Insurance Proceeds to Potential Income Taxation

  • Life Insurance proceeds may be subject to income taxation – IRC Sec. 101(j)
  • Solution? Comply with 101(j) before the policy is issued. (A valid exception must apply and notice and consent requirement must be satisfied).

Tax Trap #6: Taking a Deduction for Life Insurance Premiums

  • Generally, life insurance premiums NOT deductible – IRC §264(a)(1)
  • Solution? Don’t attempt to deduct the premiums

Tax Trap #7: Triggering Transfer-for Value Rule

  • Death Benefits may be subject to income taxation due to the transfer-for-value rule.
  • Solution? Qualify for transfer to a partner exception; Stock redemption arrangement; and Purchase new insurance.

Tax Trap #8: Triggering Taxation at Termination of a Buy-Sell Agreement

  • If owners unwind the buy-sell transfer of the policies back to insureds may result in taxation of any gain.
  • Solution? Trusteed cross-purchase using a partnership

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Deferred Compensation

Tax Trap #9: Triggering Immediate Taxation of Plan Benefits

  • Adverse tax consequences may apply if plan does not meet §IRC 409A requirements: Immediate taxation of deferred comp. benefit; Interest at IRS underpayment plus 1%; 20% penalty
  • Solution? Make sure plan complies with 409A requirements

Tax Trap #10: Application of Non-Natural Person Rule

  • Annuity will not be tax-deferred- IRC Sec. 72(u)

Solution? Consider life insurance if tax-deferral is important[/vc_column_text][/vc_column][vc_column width=”1/3″ css=”.vc_custom_1508904443159{margin-top: 40px !important;}”][vc_single_image image=”2525″ img_size=”large” alignment=”center”][/vc_column][/vc_row]