Business Planning

A Buy-Sell Agreement is a contract that outlines the terms for buying or selling a business owner’s share in certain events like death, disability, or retirement. It establishes a clear plan to avoid conflicts and ensure a smooth transition, covering aspects like valuation, funding, and buyer and seller obligations.

Protect your company if it loses the key man who makes it successful. A type of business life insurance policy that a company takes out to protect itself against financial loss in case an owner, partner, top executive, or an essential employee passes away. This coverage is designed to help the company recover from losing a key person who contributes significantly to the company’s success. It can provide financial support to cover the costs of finding and training a replacement, paying off debts, and protecting the company’s assets.

Also known as a Section 162 Bonus Plan, employers use employee benefit plans to provide additional compensation to key executives.

How it works?

1. Employer Agreement: The employer agrees with a key executive or group of executives.
2. Life Insurance Purchase: The employer purchases a life insurance policy on the executive’s life. The company pays the premium for this policy.
3. Tax Deductibility: The bonus paid to the executive is considered a business expense, and the company receives a tax deduction for it.
4. Bonus Payment: The employer pays a bonus to the executive, typically sufficient to cover the life insurance policy’s premium.
5. Tax Implications for the Executive: The bonus is generally taxable to the executive as ordinary income. However, since it is structured as a bonus, the executive may have the opportunity to receive a higher after-tax benefit compared to a traditional salary.

401(k) Plan Overview
Qualified retirement plan where employees can choose to have a portion of their wages contributed by their employer to an individual account under the plan. This plan can take various forms, including profit-sharing, stock bonus, pre-ERISA money purchase pension, or a rural cooperative plan.

Contributions to a 401(k) are made with “before-tax” money, meaning the amount chosen for contribution is deducted from the employee’s paycheck before taxes are withheld. This lowers the taxable income, potentially reducing the overall tax rate for the individual.

Defined Contribution (DC) Plan
A defined contribution (DC) plan, such as a 401(k) or 403(b), is a retirement savings plan where employees contribute a fixed amount or a percentage of their paychecks to an account, aiming to fund their retirements. These contributions are typically tax-deferred.

Defined Benefit Plans
Defined benefit plans offer employees a fixed, pre-established benefit upon retirement. This type of plan is valued by employees for its predictable retirement income. On the employer side, defined benefit plans allow for higher annual contributions (and deductions) compared to defined contribution plans.

If you are self-employed, you should open a Keogh Plan on or before the end of the tax year (December 31). Once opened, contributions to the plan can be made up until the deadline for filing your income tax return for the following tax year (for example, April 15).

A Keogh Plan is a type of approved retirement plan for individuals who are self-employed or who own the total interest in an unincorporated business, or own more than 10% of the capital or profits interest in a special partnership or an individual’s corporation.