Examine the pros and cons of hiring your children

Examine the pros  and cons of hiring your children

Hiring your own children — whether employed part-time emptying wastebaskets or full-time managing your operations — is often a great idea. As an employee of your business, a school age youngster can develop a strong work ethic and money management skills. His summer income may be used to pay for school clothes, music lessons, or sports camps. Hiring an adult child may be less risky than bringing a stranger onboard. After all, you probably won’t need to scour a five-page job application to know your kid’s capabilities and commitment level.

Tax advantages also abound. Your child can earn up to the standard deduction for the year and pay no income tax. In a sole proprietorship or family partnership, you won’t be required to withhold social security or Medicare taxes if the child is under age 18. Of course, if the IRS audits your firm, you’ll need to show that your kid’s wages were reasonable in relation to the jobs performed. An unskilled child who sweeps the factory floor shouldn’t be paid the same wage as a skilled mechanic or accountant.

But in some cases, hiring your children — especially adult kids — may not be prudent. Suppose your recent college graduate takes advantage of her status as a family member to take extended lunch breaks. If she’s given (or perceived to be given) preferential treatment, the morale of other employees may suffer. Fire her and you can expect a strained family relationship. Your 22-year-old son who brings personal problems to the office may expect Dad to address those issues during work hours.

If you’re thinking about hiring your kids, consider the following five suggestions:

  • Make sure they’re qualified. They need to fit your company and contribute to its success. Your adult son whose sole work experience is running a lawn mower shouldn’t be ushered into the vice president’s chair.
  • Hire them on a trial basis. Employing them for three to six months on a probationary basis may prevent problems later.
  • Get it in writing. Don’t rely on a handshake or verbal agreement. Specify duties, responsibilities, and wages in a written contract.
  • Follow the chain of command. Your child should report to someone else for her work schedule, performance reviews, compensation, and bonuses.
  • Don’t be your kid’s first employer. Let your child develop skills and a professional identity at someone else’s firm. He or she should learn to function as valued employee before applying to work at your company.

Health savings accounts offer tax benefits

Health savings accounts offer tax benefits

In an era of temporary tax provisions, health savings accounts (HSAs) have been around a long time, and little has changed since they were first introduced in 2003. More importantly, HSAs offer tax benefits, many of which stay in place under the new health care laws.

Here’s a refresher on how HSAs work.

  • An HSA has two parts, a high-deductible health insurance policy and a savings account. The idea is simple: You buy a health plan with a high deductible, and you deposit cash into a savings or investment account to pay the policy deductible and other qualified out-of-pocket medical expenses.
  • The tax benefit comes from the way the savings account part of the HSA works, which is similar to a traditional individual retirement account. For example, you can claim a federal income tax deduction for contributions to your HSA, and the deduction is above the line, meaning you can benefit without having to itemize.
  • For 2012, the maximum tax-deductible contribution is $3,100 when the insurance plan covers only you, or $6,250 when you purchase an insurance plan for your family. When you’re age 55 or older, you can contribute, and deduct, an extra $1,000.
  • In addition, interest, dividends, or other growth in the account is tax-free as long as you use withdrawals for qualified medical expenses. What happens if you use the money for other purposes? The withdrawals are included in income, taxed at your regular rate, and subject to a 20% penalty.
  • Other rules apply, including the opportunity to fund an HSA with a tax-free rollover from your individual retirement account.

Please give us a call so we can help you determine how an HSA will benefit you.

Home equity loans and lines of credit: Consider the pros & cons

Home equity loans and lines of credit: Consider the pros & cons

It’s a simple calculation. Deduct the outstanding balance on your mortgage from your home’s market value. The difference is home equity. For example, if your house is worth $300,000 and your outstanding mortgage (including any other liens tied to the property) is $200,000, your home equity is $100,000. And as lenders are quick to point out, that equity represents a ready source of cash. It can be used to pay for emergencies, home improvement projects, debt consolidation, tuition payments, even a cruise in the Bahamas.

The two main vehicles for tapping your home’s equity are home equity loans (HELs) and home equity lines of credits (HELOCs). With a HEL, you get the loan proceeds in a lump sum and establish payment terms (loan amount, payoff period, and interest rate). In that sense, a HEL is similar to an automobile or consumer loan. A HELOC, on the other hand, acts more like a credit card. The lender establishes a limit against which you may borrow, and the interest rate tends to be variable.

Before using the equity in your home to bolster your bank account or pay off high-interest debt, consider the following:

A home equity loan is best used for a one-time goal, such as remodeling a kitchen. Using the proceeds for a project that increases the home’s value may even pay for itself in the long run. A home equity loan provides the security of a fixed monthly payment, a stable interest rate, and a definite term (typically ten to fifteen years), making it a good choice for planning purposes. On the other hand, if your income suddenly dries up or your home’s market value drops, you’re still on the hook to make those payments.
Home equity lines of credit provide more flexibility, making them useful for, say, a remodeling project to be completed over an extended period of time. You take on only as much debt as needed to complete the next step in the process. On the other hand, a line of credit’s variable interest rate makes it more risky when rates are climbing. And like a credit card account, a line of credit is easy to abuse.
The decision to tap your home’s equity using either of these vehicles will depend, to some extent, on your tolerance for risk. Remember, if you fail to make the required payments, your house is on the line.


Tips for avoiding identity theft

Tips for avoiding identity theft

As tax-related identity theft continues to increase, keeping thieves at bay and safeguarding your identity requires vigilance.

Here are tips.

  • File your income tax return early. A common scam is tax refund fraud — when someone steals your social security number, or that of your dependent, and uses the number to file a false return and claim a refund. Once your return is filed, subsequent returns using the same social security numbers are rejected.
  • Read and respond promptly to tax notices. Another tax-related scam involves someone who fraudulently uses your social security number to apply for a job. The first indication your identity has been compromised this way may be a notice you receive from the IRS asking about a discrepancy in reported wages.
  • Monitor your credit and other consumer reports. Requesting free copies of your credit reports can indicate bogus changes in your employment, which might mean someone is using your social security number.
    In addition, ask for a free copy of your financial account report, which can alert you to bank accounts opened in your name.

If you believe your personal information may be at risk, please call immediately. We’ll help with the steps you need to take to protect your identity, including filing an affidavit to put a flag on your tax account and receiving an Identity Protection Personal Identification Number