Monthly Archives: October 2016

What to do When Checks go Unclaimed

account and financeMaybe it was lost, or got tossed out. Maybe the dog ate it. While it may be hard to understand how payroll checks can go uncashed, it happens. Unclaimed wages (and other property, such as commission checks, shareholder dividends, checks to vendors, and unredeemed gift cards) create problems for businesses — and revenue opportunities for cash-strapped state governments. That could be an unfortunate combination if your company isn’t in full compliance with state law.

When Wages Go Unclaimed

Generally speaking, businesses are not permitted to hold on to uncashed checks indefinitely. Each state has its own laws regarding unclaimed property, and employers must follow the rules for reporting and remitting such property to the state.

Most states consider unclaimed wages to be “abandoned” after a year. During that period, employers must make a good faith effort to contact the wage earner so the property can be claimed. If these attempts fail, employers must turn over the abandoned wages to the appropriate state agency.

States Want To Know

To supplement tax revenues, states have generally been stepping up their audit and enforcement efforts regarding abandoned property. For businesses, the cost of noncompliance can be quite high, especially if they haven’t been keeping reliable records. In the absence of records, auditors may — and often do — estimate a business’s liability, which may result in an exaggerated assessment.

Protect Your Business

In addition to paychecks, you might have other unclaimed property to contend with, too. Take steps to protect yourself by putting someone in charge of handling your business’s unclaimed property, keeping accurate records, regularly filing required reports of unclaimed property with the appropriate state agency, and promptly turning over any unclaimed property according to state law. Your time and effort will be well spent if it helps avoid costly problems in the future.

Don’t get left behind. Contact us today to discover how we can help you keep your business on the right track. Don’t wait, give us a call today.

How to Decide Between Taxable and Tax Exempt Investments

istock_000002942341_large-4Suppose you are considering two investments. One is tax-exempt and the other is taxable. Which should you choose?

Make the Comparison

The first thing you should determine is the taxable investment’s after-tax yield. If two investments are offering the same rate of return and are of equal quality, you’re better off with the tax-exempt investment. However, taxable investments generally pay a higher rate of return. Thus, you can’t make a fair comparison without considering the taxes you would pay in your tax bracket on the income from the taxable investment.

Here is a simple three-step formula for comparing your after-tax return on a taxable investment with the return on a tax-exempt investment.

Step 1: Subtract your marginal tax rate from 100%. (For example, in a 28% tax bracket, 100% – 28% = 72%.)

Step 2: Multiply the rate of return on the taxable investment by the resulting percentage. (6% hypothetical return ´ 72% = 4.32% after-tax return.)

Step 3: Compare this rate with the rate of return on the tax-exempt investment.

In our example, the investor in a 28% marginal tax bracket would choose the taxable investment paying 6% over a tax-exempt paying less than 4.32%. A tax-exempt investment paying more than 4.32% would be the better deal, assuming it were of equal quality.

Give us a call today, so we can help you determine the right course of action for you.

What You Need to Know about IRAs and Taxes

Nest eggTax deferral is a key benefit of investing in a traditional individual retirement account (IRA). But the tax law doesn’t allow indefinite tax deferral. Starting at age 70½, IRA owners must withdraw a minimum amount — called a required minimum distribution, or RMD — every year. All funds withdrawn from a traditional IRA are taxed as ordinary income except for nondeductible contributions, which aren’t taxed again.

A beneficiary who inherits a traditional IRA doesn’t receive a pass on income taxes. If you inherit an IRA, be cautious about simply liquidating the account, since the tax bite could be quite large. Instead, talk with us about your distribution options.


As a Surviving Spouse . . .

You can leave the account as is and designate yourself as the account owner, assuming you are the sole designated beneficiary of your spouse’s IRA. Or you can roll the funds over into your own traditional IRA. Either way, you won’t have to take any money out until after you reach age 70½. Then, you’ll have to start taking RMDs. If you want to, you can allow the rest of your IRA to continue growing tax deferred.

A surviving spouse can also choose to be treated as the IRA beneficiary. This might be the better choice if you’ll need to take money from the IRA before you turn 59½, since withdrawals by IRA beneficiaries escape the 10% tax penalty on early withdrawals. What about RMDs? If you go the beneficiary route, you generally won’t have to start taking them until the year your spouse would have reached 70½.


As a Nonspouse Designated Beneficiary . . .

You can also stretch out withdrawals — and the related income taxes — by setting up an inherited IRA. The deadline for taking your first RMD is December 31 of the year after the year the account owner died. You may make additional withdrawals from the IRA at any time.

Somewhat different rules may apply if you receive an IRA that has passed through an estate instead of directly to you as the account’s designated beneficiary. To get the most from your IRA inheritance, you’ll want to carefully evaluate your options.

Give us a call today, so we can help you determine the right course of action for you.