Where do the presidential candidates stand on issues affecting small business?

In light of the current events in the financial markets, the presidential campaign seems to be playing a back seat to other more dramatic financial news. We have all heard and read that this presidential election is perhaps one of the most important elections in our lifetime. While that may be true, many small business owners have less time today to study the issues and understand where each candidate stands on the issues. ABMI has summarized some of the issues relevant to small business and provided a few links to quick resources to help you research the issues in more detail.

We are in fact at a critical time in our country. Some of the fundamentals that seemed to work for the economy for so long have faltered leaving large holes in what appeared to be a solid foundation. The professional team at ABMI is tracking the economy in great detail and studying the impact on various market segments. One basic truth is that the backbone of our economy has always been small business. It is imperative for small business to be empowered with the tax structure and incentives to allow them to rebuild in a very challenging marketplace. It is unfortunate that the backbone of our economy (the small business owner) often falls into an earnings category that appears to be a target for proposed tax increases as opposed to incentives. Please take time to study the issues and how they impact small business…and make the commitment to vote.

While there are a number of issues to consider in your decision, ABMI has selected two issues relevant to small business for a brief side-by-side comparison.

Taxes
Obama proposes to raise taxes on small business owners that make more than $200K per year. These business owners are an important segment in our economy employing a significant portion of the work force.

Subject	John McCain	Barack Obama
Individual Income Tax	Keep two tax rates at 33% and 35%	Increase top two tax rates to 36% and 39.6%
Corporate Tax	Reduce tax rate from 35% to 25%	Reduce tax rate for companies that start operations in the U.S. and repeal tax breaks for companies that retain earnings overseas.
Capital Gains	Maintain 15% tax rate	Increase rate to 20% for individuals making more than $200,000 and eliminate tax on investments in small business and startups.
Estate Tax	Collect 15% tax on estates worth more than $5 million	Collect 45% tax on estates worth more than $3.5 million.
Source: Kansas City Business Journal October 10, 2008

Health Care
John McCain and Barack Obama have very different views on the employer’s roles in health care. McCain’s plan proposes to provide a refundable tax credit to pay for health insurance premiums that they buy on their own. Obama’s plan would require businesses to provide health insurance for their employees or pay additional taxes. Small businesses would receive a tax credit to help offset the additional cost of the insurance.

John McCain	Barack Obama
Would provide refundable tax credit of $2,500 to individuals and $5,000 to families for health insurance premiums. Employer provided benefits would be treated as income.	Would create national health insurance exchange for individuals to buy coverage including a government-sponsored plan similar to the one offered to federal employees.
Would allow individuals to buy health insurance nationwide across state lines.	Would provide small business with a tax credit to offset cost of health insurance premiums.
Would work with states to establish a guaranteed access plan for individuals who have been denied insurance because of pre-existing conditions or other reasons.	Would require businesses to pay additional taxes if they don’t provide health insurance.
Source: Kansas City Business Journal October 10, 2008

ABMI is not taking a position to endorse either candidate. There are a number of resources available to help make sense of the various issues. To access some of these resources follow this link. http://abmi.net/Politics08.html
We urge you to reference some of these resources to study the issues and form your own conclusions. Once you have made a decision, take the time to vote.

BUSINESS ESTATE PLANNING

How to Preserve Your Life’s Work
You’ve spent a lifetime building your business. Now you need to take a few moments to make sure your hard work will survive after your death or the death of one of your partners.
As the owner of a closely held business, much of your wealth is probably tied up in the business. While returning earned income back into the business helps to finance growth, it can cause severe liquidity problems for your estate when you die. After paying probate and estate taxes, your estate and surviving family members may encounter liabilities that become payable soon after your death. They may also face the potential of decreased business earnings due to your absence.

There are ways to overcome these liquidity problems. Creating a business estate planning strategy may help reduce estate taxes and make the best use of the cash available. The most common business estate-planning strategies are buy-sell agreements, Section 303 stock redemptions, and Section 6166 estate tax deferrals. Business-owned life insurance can be used to fund each of these planning strategies.
Buy-Sell Agreements -Buy-sell agreements can establish the value of your business for estate tax purposes and improve your estate’s liquidity by assuring a ready market for your business upon your death. These agreements also protect business partners from sharing ownership with a deceased stockholder’s family.

There are two main types of buy-sell agreements: cross-purchase and stock redemption. In an insurance-funded cross-purchase arrangement, each business owner buys an insurance policy on the other, naming themselves as beneficiary. At the death of one of the owners, the surviving owner receives tax-free insurance proceeds to use in purchasing the deceased owner’s stock from his or her estate.

In an insurance-funded stock-redemption arrangement, the corporation purchases the stock of a deceased shareholder. The business is the owner and beneficiary of a life insurance policy on each shareholder. The life insurance death benefit is income-tax-free to the business if the business has met the requirements of Internal Revenue Code 101(j) at the time of purchase. These requirements include providing the insured with advance written notice, obtaining the insured’s prior written consent to be insured, and meeting the insured’s income requirements. A partnership developing a business continuation strategy may use a similar arrangement called an “entity purchase.”

A buy-sell agreement that is funded with life insurance has these benefits:
For Your Family
. Prevents conflicts with surviving owners
. Ensures that your family receives a fair price for your business
. May set the value of your business for estate tax purposes
. Provides needed cash

For Your Business
. Keeps new and/or unwanted owners out of the business
. Prevents disputes
. Ensures continuity and orderly transfer of ownership
. May provide tax-free cash to purchase stock


It also has these special considerations:
. For insurance-funded buy-sell agreements there are attorney’s fees for drafting the necessary legal documents.
. Life insurance premiums must be paid to fund the strategy. If an individual is unhealthy, life insurance could be costly or even unavailable.

Section 303 Redemptions
Section 303 of the Internal Revenue Code gives your estate a one-time opportunity to remove cash or other property from your business, at little or no tax cost, through a partial redemption of your stock. This can provide the liquidity your survivors need to pay funeral costs, estate and administrative expenses, and state and federal death taxes.
To be eligible for a Section 303 Redemption, the stock value must exceed 35 percent of your estate. The maximum amount that can be paid under such a strategy equals the total amount of the federal estate tax, state death taxes, and funeral and administrative expenses. Corporate-owned life insurance can be used to fund the redemption. Under this arrangement your business purchases an insurance policy on your life and at your death uses the tax-free proceeds to buy enough stock from your estate to cover death expenses and taxes.

Section 6166
An estate tax burden can force the liquidation of a closely held business. Internal Revenue Code Section 6166 was designed to prevent this liquidation. If the business interest constitutes more than 35 percent of your adjusted gross estate, the executor may elect to pay the estate tax attributable to the value of the business in 10 annual installments, beginning no later than five years after the date of the your death.
There are a number of requirements you must meet to be eligible for the Section 6166 extension. If your estate qualifies, life insurance offers an economical way to pay these installments.

Preparation
No matter what technique you choose for your company, determining the value of the business is a key step in the estate planning process. Why? Firstly, in the case of a buy-sell agreement, you need to know the value of the business to determine the price and fund the agreement. Secondly, because the business is part of your estate, the valuation is needed to estimate the estate taxes. This helps you calculate the cash or liquidity needed to administer the estate. Finally, the value of the business must be reported on the estate tax return when the owner dies.

This information is a general discussion of the relevant federal tax laws. It is not
intended for, nor can it be used by any taxpayer for the purpose of avoiding federal tax
penalties. This information is provided to support the promotion or marketing of ideas
that may benefit a taxpayer. Taxpayers should seek the advice of their own tax and legal council.





Email: Howie.Fleischer@rfconline.com
Renaissance Financial
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Leawood, KS 66211
913-378-2900
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