Don’t Blow a Perfect Game
Haven’t we all wished at one time or another for the option of an instant replay? Probably not as much as umpire Jim Joyce did last week after calling a runner safe on what would have been the last out of a perfect game by Tigers’ pitcher Armando Galarraga. The later video showed the runner was out by at least a full step.
While the debate for instant replay in baseball rages on, it may be a good time to think about “instant replay” in our businesses. A review of your business’s current employee policies and practices, operating agreements, corporate minutes and policies, and other important matters can save you from a Jim Joyce moment, realizing you did not look quite close enough. Experienced assistance may help prevent real difficulty, much as Joyce could have used the help of his fellow umpires or any serious Tigers fan in the crowd or watching on TV.
Take, for example, the change in taxation for ‘S’ Corporations coming next year. According to a bill passed by the House and Senate being made ready for the President’s signature (H.R. 4213), service firms will be losing out on a major advantage in having S Corp status. Owners of smaller S firms that provide personal services will owe self employment tax on their entire profit starting next year. This alters allowing the corporation’s profits to flow through to the owners’ individual tax returns as dividends, thereby avoiding payroll taxes. Former Presidential Candidate John Edwards made headlines in 2004, when his income tax return revealed he had used this tax advantage to avoid up to $591,112 in payroll taxes by maintaining an S Corp law firm. Now, there will be an additional 15.3% tax on the first $106,800 in profits, and 2.9% for all amounts over that.
So for any business where the principal asset is the reputation and skill of three or fewer workers, it will no longer be possible to keep dividends exempt from the self employment tax. Time to review the benefits of your existing and the applicable alternative tax strategies.
Another example is reviewing your employee handbook to avoid the top ten areas your company could “miss a call.” The top ten problems to avoid are: 1. Using a form handbook, which usually contain promises your company will not keep. 2. Including too much detail on procedures, instead of having a separate manual for managers dealing with procedures. 3. Mentioning an employee probationary period; it can erase at-will status by implying that, once the period is over, the employee may stay indefinitely. 4. Being too specific in your discipline policy, giving the impression that the list covers every possible infraction. 5. Being inconsistent with other company documents. 6. Overlooking an at-will disclaimer that acknowledges the company’s right to terminate employment at any time. 7. Sabotaging those disclaimers by reassuring employees about job security, instead of staying mindful of the at-will disclaimers. 8. Failing to adapt the handbook to the state’s laws you are operating in. 9. Failing to update the manual frequently for changing laws. 10. Setting unrealistic policies that your managers will be unable to enforce.
With many other changes in the tax and business law coming, don’t let your business lose out on a perfect game due to a failure to take a second look.