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Guest Post: Buy-Sell Agreements

August 27, 2010 · Filed Under Insurance · 5 Comments 
Today’s guest post was provided by Denise Mancini of Accuquote. Check out for free life insurance quotes from top-rated companies.

If you are a partner or a shareholder in a family or small business, you would want your business to flourish even after you are gone. Yet, statistics reveal that only 30% of family businesses survive after shareholders pass on. This makes it all the more pertinent for you to have a business succession plan in place, so that your business is protected from financial mismanagement, a buy-out or even bankruptcy after you die. A key tool in your business succession plan is a buy-sell agreement.

What are buy-sell agreements?

A buy-sell agreement is an agreement between business partners to buy out the share of a deceased partner. A buy-sell agreement is uncomplicated and economical; it removes all the problems associated with buying another partner’s interest in the business – the question of whether the business can fund a buyout, and if it can replace the job of the deceased partner. Life insurance is an important tool in the execution of business succession plans. How does it work? It is very simple – after determining the value of the business, life insurance is purchased based on each partner’s share. This allows a no-hassle transfer of interest in the event of a partner’s death.

Types of life insurance-funded buy-sell agreements

There are two types of buy-sell agreements, Cross Purchase and Stock Redemption. In a Cross Purchase each owner buys a life insurance policy on the other owners, and is named the beneficiary of such a policy. In a Stock Redemption situation the business purchases the life insurance policies. When a partner or shareholder dies, the other partners use the proceeds of the policy to redeem the deceased partner’s share.

The process

Though buy-sell agreements can be drafted and executed by the partners themselves, it helps to take the help of an attorney, an accountant and a life insurance professional to guide you through the process and spot any loopholes in your succession plan. Make sure you work with professionals with either a CLU (Chartered Life Underwriter) or a CFC (Chartered Financial Consultant) designation. An attorney’s role is vital in drafting the agreement, the value of the firm, and in deciding the best alternative from the perspective of tax benefits.

These professionals will also help you choose the best kinds of life insurance policies for the execution of your buy-sell agreement. Free life insurance quotes are also available online.

Buy-sell agreement/policy review

Experts in buy-sell strategies recommend that the agreement should be reviewed periodically, preferably every alternate year. The value of your business will keep changing, and you need to make the corrections in your policy values accordingly.

In the event that the owners decide to wind up the business or sell it, it doesn’t take too much work to convert the life insurance policy into a personal life insurance policy.

Advantages and disadvantages of a buy-sell agreement

A buy-sell life insurance agreement lays to rest many of the succession-related uncertainties that business partners are faced with. The life insurance death benefit aids the partners/ the business to buyout the deceased partner’s share. The deceased partner’s family benefits from the proceeds of the sale, and the amount is tax-deferred. The proceeds are also exempt from corporate alternative minimum tax and creditor claims.

A qualified adviser will be able to help businesses iron out the few creases that buy-sell agreements have – life insurance premiums are not tax deductible, the premiums will vary as per the partners’ individual age and health conditions, etc.

Buy-sell agreements are vital to succession plans of small businesses

Even if the partners are in total agreement about future plans, a formal buy-sell agreement will set things in stone, and help ease the minds of all the parties concerned. A buy-sell agreement is vital to the smooth continuity of every small business, so get started on getting quotes online for your buy-sell plan today.

Guest Post: 4 Tax Penalties Every Taxpayer Should be Aware of

August 19, 2010 · Filed Under Random · 5 Comments 
This blog post was provided by Matt Robinson of If you are looking for more information on IRS Penalty Abatement or would like to be kept abreast on various tax news and changes visit their tax debt blog today.

Being aware of the various tax penalties the IRS could impose will help you avoid them. Here are four tax penalties every taxpayer should be aware of and avoid:

Failure to File Penalty

The Failure to File Penalty is imposed on taxpayers who do not file their tax return or request a tax filing deadline by the due date of April 15th. If you are unable to complete your return before the deadline, make sure you request an extension which will give you until October 15th to file. If an extension is granted, and you still do not file your taxes by the new deadline, you will be charged a Failure to File Penalty which is 5% of the total amount of tax liability per month for a maximum of 25% of your total tax liability.

If it is found that you didn’t file your taxes for fraudulent or negligent reasons, your fine can be increased as much as 75% of your original, total tax liability.

Avoid having to pay this penalty simply by submitting your tax return on time.

Failure to Pay Penalty

The Failure to Pay Penalty is calculated from the original payment deadline of April 15th, and is .5% per month for each month you don’t pay your owed taxes in their entirety. This penalty can exceed 25% of the unpaid balance on your taxes.

This penalty is in addition to the interest rate charged to taxes owed. The average IRS interest rate for underpayment of tax liabilities is around 4% currently, but the rate changes every three months.

Avoid the Failure to Pay Penalty by paying your taxes by the due date. If you cannot pay your total tax liabilities in full, then it is best to pay what you can in order to reduce the failure to pay penalty.

Accuracy Penalty

If the IRS finds that your tax return is inaccurate, there will be accuracy penalties and interest imposed. If the mistakes do not appear to be intentional, the accuracy penalty is normally 20% of the total understatement of tax. If the mistakes appear to be fraudulent or there were gross valuation misstatements, the penalty may be as much as 40%.

If you believe the penalty you receive for inaccurate information on your tax return is due to inaccurate advice you received from an IRS employee, you may be able to file a penalty abatement and have the penalty removed.

There are some other situations which may result in the removal of the penalty as well, and a tax professional can assist you with determining if your reason for the inaccurate information would be considered with reasonable cause or a valid excuse.

You can avoid the Accuracy Penalty by checking your tax return carefully to ensure everything on it is correct. Use the assistance of tax professionals if you need help filing your tax return.

Tax Fraud Penalty

If you have underpaid taxes owed due to fraud, you will receive a tax fraud penalty of 75% of the underpayment. The IRS will examine each return with a tax underpayment to determine whether or not there is evidence of fraud. Negligence, or not understanding tax laws is not considered fraud. You can avoid a tax fraud penalty by completing your tax return with accurate information, and following IRS rules.

Reader Question – Buy Me Now or Buy Me Later?

August 12, 2010 · Filed Under Random · 4 Comments 

I was recently presented with this question from one of my readers:

Thought you might be interested in weighing in on the decision we are needing to make. We are nearly entirely on a fixed income now, so there is no cash from the working budget for any large purchase. Our clothes washer is at least 13 years old and has been making strange noises for some time. The repair man said not to put any more money into it if breaks down again. So here is the decision: do we gamble and wait for the thing to die and then possibly have to pay a larger amount (from savings) for a new one OR do we take the money (again from savings) and purchase a new one now, hopefully on sale and while we can get a little Energy Star appliance “clunker” rebate from the government? Which move is more financially prudent?

I think the key here is to not have to put the purchase on a credit card and pay a high interest rate on it thus making a difficult purchase even more so.  In either case you describe, you are using your own money to purchase the washer.  If you were saving up to be able to buy one later but had to use a credit card to buy one now, I would say wait and save.  That is not the case for you.

Let’s look at the details a bit more.  We’ve already established that you are using money from your savings.  The question is should you wait or do it now.  The advantages of buying now are that you can be proactive about finding a sale and use the appliance clunker rebate (of course, each state handles this differently).  Another advantage of waiting would be to earn interest on the money in your savings account while it sits there.  That is not going to amount to a significant amount of money even if you do get another year or two out of your washer.  At $1000 with current rates maybe at 1%, that’s $10 a year – not very much.  As long as we’re talking small sums of money, don’t forget to consider how much more energy efficient a new washer would be compared to one that is 13 years old.  A new one will most likely save you some energy costs and the sooner you purchase one the sooner you’ll start realizing those savings.

On the flip-side, the pros for waiting are that your washer could in fact continue to work for a long time thus saving you that cash outlay for months or possibly years.  I guess that’s all I can come up with as a pro for waiting (I’d have a better argument for waiting if you told me you were going to charge it and pay it off over the next 24 months!)

Again, I think the overarching key to this question is whether you can make the purchase now with your own money or if you have to use a credit card.  If I were in your position with money in the bank to purchase a new washer, I would start looking for one.  Do your research for price, effectiveness, and reliability, check out different stores, search for coupons and sales, etc.  Basically, I’m suggesting that you prepare yourself ahead of time so you can take your time but still be ready to pounce when you find a great deal.  Good luck!

I’d love to hear if any readers would like to chime in with some (possibly different) advice…

Weekly Bible Verse – Generosity will Bring Blessing

August 11, 2010 · Filed Under Weekly Bible Verse · 6 Comments 

If there is a poor man among your brothers in any of the towns of the land that the LORD your God is giving you, do not be hardhearted or tightfisted toward your poor brother. Rather be openhanded and freely lend him whatever he needs.  Give generously to him and do so without a grudging heart; then because of this the LORD your God will bless you in all your work and in everything you put your hand to.  Deuteronomy 15:7,8,10 (NIV)

If you’re reading this, then you’re most likely someone who cares at least a little bit about receiving God’s blessing (and maybe you care a whole lot).  This week’s verse is therefore of interest to you.  In the last sentence we see that God will bless you in “all your work and in everything you put your hand to.”  To be blessed in everything you do is a pretty sweet blessing (I want some of that!).

Of course, the next question is, “How do I go about receiving this awesome blessing from God?”  The first sentences tell us that we should freely lend a less fortunate person whatever he needs and should not be miserly toward him.  That is how you receive this blessing from God.  That seems counterintuitive, wouldn’t you agree?  It is basically teaching that you have to give away to get more.  That certainly flies in the face of the worldly wisdom of our society.

You’ve probably heard a Christian pastor or teacher or blogger at some point say that it is critically important for you to give to God as part of your financial plan.  In fact, you’ve probably heard that it should be the first thing you do with your money each month (I’ve said both of those things on this site).  Even if you are having trouble making everything else fit into your budget, skipping this crucial piece of your plan will have deleterious effects on your finances.  Again, that’s another counterintuitive teaching, isn’t it?

I think this week’s verse explains why that lesson actually makes sense (ok, still not from a worldly perspective, but I only really care about the Godly perspective anyway).  We just learned that if we give generously and without a grudging heart that God will bless everything that we do!  Now I’m not suggesting that we give money and God is forced to make us rich – I don’t think that is the message of this verse at all.  Remember the “generous” and “without a grudging heart” thing?  I’m convinced that giving money solely for the purpose of getting more back from God does not meet those criteria.

What I am saying is that we can give our gifts to God’s kingdom and be generous to those in need knowing that God will return that to us in the form of blessing.  Whether that’s a financial blessing or a family blessing or some other kind (or all of the above), I can’t say with certainty.  But I do believe that God tends to give more resources to those who have proven that they will direct a good portion of those resources back to God’s kingdom and to bless those in need.  So that’s something for you to think about this week.

God bless and have a great week…

Weekly Bible Verse – God is the Source of All Blessing

July 26, 2010 · Filed Under Weekly Bible Verse · 2 Comments 

Therefore, take care to follow the commands, decrees and laws I give you today.   If you pay attention to these laws and are careful to follow them, then the LORD your God will keep his covenant of love with you, as he swore to your forefathers.  He will love you and bless you and increase your numbers. He will bless the fruit of your womb, the crops of your land—your grain, new wine and oil—the calves of your herds and the lambs of your flocks in the land that he swore to your forefathers to give you.  Deuteronomy 7:11-13 (NIV)

This week’s Bible verse is a simple reminder of who is in control of everything (hint: it’s God).  Yes, it is a simple truth but one that I think we need to remind ourselves of occasionally.  Of course, most God-honoring people know that God “blesses” but I think sometimes we lose sight of the specifics of what or how He blesses us.  That’s why this is our weekly verse…

Not only does God bless us in a generic sense but he also blesses materially as well.  He will bless “the crops of your land, … the calves of your herds and the lambs of your flocks.”   This is another reminder to not separate out your “church” life from your “work” life.  We should not be people that do church and then do work and then ….   Instead, we should be Christians who recognize that God wants to be foremost in ALL of our lives: yes Sunday morning but also every morning.  He wants to be the most important thing in all aspects of our lives and has the capability to direct us and bless us in all aspects of our lives as well.  Seeing as this is a personal finance blog, I thought it appropriate to remind us who is really in control of our finances and wealth.

So don’t be a person who goes to church sometimes; rather, be a Christian who seeks to follow God’s commands in all areas of his/her life and therefore experiences all the blessings that God wants to put into your life.

God bless and have a great week…

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