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One of the more difficult challenges facing a business owner is
the formulation of a viable and economically beneficial exit
strategy at retirement. Typically, the main goals of such an exit
strategy are 1) to identify a qualified buyer, and 2) to receive
fair compensation for the business, which would, in turn, translate
into a desirable retirement income.
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Business owners are often so busy with the day-to-day issues of
running and growing their companies that the issue of business
succession is often overlooked or left on the "back burner" until
it's too late. What would happen to your business if you were to
disappear from the scene tomorrow due to disability or death? Would
your co-owners, managers, employees, and family members know what
to do and would they have the guidelines and tools they would need
to keep the business moving forward?
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From the smallest proprietorship to the largest international
conglomerate, cutting costs can often be perceived as a "quick fix"
toward improving financial results. However, such business
decisions may not always be in the best long-term interest of an
otherwise healthy company.
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Although small business owners wear many hats, too often, the
one labeled "Retirement Planner" is not among them. Hats may add
panache, but basically, they're for protection. Today, protecting
your financial future, as well as that of your employees, by
establishing a defined contribution plan is
relatively easy.
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As a family business grows, the owner must ultimately consider
how the entity will prosper once he or she takes leave of the helm.
With proper preparation, the change-in-command should go
smoothly.
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Section 105 of the Internal Revenue Code may very well be one of
the "best-kept secrets" for managing your company's health care
costs. The medical reimbursement plans allowed under Section 105
provide sole proprietors, partnerships, C corporations, and
limited liability companies (LLCs) a full tax deduction
for employee medical benefits. This includes premiums paid to fund
employee/dependent health insurance and other non-insured medical
expenses (e.g., dental and vision care). As a small business owner,
finding the right combination of employee benefits and tax savings
is important to your company's cost management strategy.
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Competition is the backbone of the American economy. But
business owners need to consider the consequences of a consultant
or key employee opening a rival company - stealing trade secrets,
hiring valued staff, and luring away customers. This could pose a
serious threat to your business. You wouldn't have merely another
competitor, but one with an inside edge - thanks to your
proprietary information and diligent efforts.
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When trying to save for the future, a 401(k) retirement savings
plan can help you attain your objectives on a tax-advantaged basis.
Named for the section of the Internal Revenue Code (IRC) that
created it, a 401(k) plan may be one of the most popular and
valuable fringe benefits available. Although the technical aspects
of 401(k)s can be complex, the advantages of these plans can be
far-reaching.
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The Consolidated Omnibus Budget Reconciliation Act of
1986 (COBRA) enacted health care continuation coverage
requirements applicable to employers with more than 20 employees
(except churches, the federal government, and the District of
Columbia). COBRA requires an employer who maintains a group
health insurance plan to provide employees with an option
to remain covered by the employer's plan for a specified period of
time, if the employees or their family members lose coverage upon
the occurrence of certain events (such as reduced or terminated
employment).
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Section 125 "cafeteria plans" can help business owners and
employees lower their tax bills. Under Section 125 of the Internal
Revenue Code, workers are permitted to withhold a portion of their
pre-tax salaries to pay for premium contributions to
employer-sponsored insurance plans and to cover qualifying
unreimbursed medical and dependent care expenses. Because Section
125 benefits are not subject to FICA or income taxes, cafeteria
plans can help employees lower their taxable income, while reducing
the payroll and workers' compensation tax liabilities of their
employers.
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Life insurance may be a "diamond in the rough" for your business
if its ongoing success depends on one or more key individuals. The
death or disability of such a person - for example, an owner or
manager who brings in customers - can mean tough times. The
realities of business do not include a grace period following a
loss: Cash flow must continue, and customers will need reassurance
that your goods or services will continue to be available.
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From time to time, circumstances may warrant taking money out of
your 401(k) account. If you're older than age 59½, become disabled,
get divorced (in specific situations), or die, money can be removed
from your 401(k) without paying the 10% federal income tax penalty
for early withdrawals. (Of course, income taxes will still be
due.)
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As larger corporations downsize to meet the competitive
challenges of the 21st century, many middle managers are taking the
opportunity to strike out on their own as consultants. They often
seek the independence and satisfaction of working for themselves.
Wouldn't everyone?
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When Cindy and Sean Baxter purchased their life insurance
policies ten years ago, they thought they did things the right way.
They determined their insurance needs, taking into account the
mortgage on their home, projected college education costs, and
living expenses. Well, that was then - and this is now
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The possibility of sustaining a long-term disability from an
accident or illness is something most of us would rather not
contemplate. However, there is a way to protect you and your family
should you lose your ability to earn income.
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Insurance is like a fire extinguisher. You sleep comfortably,
knowing it's there, but you hope you'll never have to use it. If
you do need it, however, it's helpful to know what to do.
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One of America's great rites of passage - a teenager getting his
or her driver's license - also brings with it an increase in the
cost of insurance for the family car(s).
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Many individuals view life insurance as a means of providing a
financial "safety net" for loved ones after the family provider is
gone. While correct, this view may be limited when one realizes
that insurance companies work to continually enhance their
offerings to give insurance consumers more return for their premium
dollars
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Daily family life means the mortgage gets paid ... clothes and
groceries are bought... and summer vacations are taken with family
and friends. All this is part of what many of us take for granted
every day of the week.
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Many people often ask "Who needs life insurance?" Another way to
phrase the question might be "What can life insurance help me
accomplish?" When viewed as a planning tool, life insurance can be
used to help you achieve a variety of important financial
objectives. Let's look at a few hypothetical examples to see some
of the benefits it can provide.
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What if you suddenly became sick or hurt and lost your ability
to earn a living? How would you pay your bills and daily expenses?
According to the Insurance Information Institute (III, 2007), 43%
of all people age 40 will have a long-term (lasting 90 days or
more) disability event by age 65.
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