TAXS Management

Employers should consider all implications before transferring any ownership interest in the business to employees. Sharing ownership with your employees can create numerous new problems. These problems stem from the new relationships you would have to maintain with the new co-owners. By transferring ownership to employees, you grant new rights to the employees beyond profit sharing. Owners have rights to examine all of the business transactions. As a corporate officer, you would become a fiduciary for these new owners. A fiduciary has a legal obligation to act primarily for the benefit of the other shareholders. This means that you could be sued for various acts such as shifting corporate opportunity or running certain expenses through the corporation. Even if no litigation resulted, the new co-ownership relationship could create added difficulties that would not otherwise exist.

On top of the problems that could arise, the transfer of ownership may not have the intended result. Some employees are motivated by ownership. Others are not. It is possible that some of the employees who acquire an ownership interest will not alter their performance. If you subsequently decide that sharing ownership is not a good idea, it could be difficult to buy back the issued shares.

There are a number of other incentives that could be used to motivate employees without transferring actual ownership. These include profit sharing plans and phantom stock plans.

Tax accountant John Huddleston has a law degree and masters in tax law from the University of Washington School of Law. He has been a guest tax expert on the radio. He advises small businesses in the Seattle Bellevue Kent Everett area on various tax issues. His firm, Huddleston tax accountants, also provides tax preparation service, quickbooks consulting and general accounting and bookkeeping service. Seattle Bellevue tax accountant John Huddleston is a frequent publisher of tax saving ideas.

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TAX-FREE COMPOUNDING

Contributions inside a Roth IRA can grow and compound each year in your investment portfolio on a tax-free basis. This cannot be said for investments within a 401k plan or traditional IRA, which only experience tax-deferred growth compounding. At some point in time the investments held within 401k and IRA plans will have to pay the tax man.

TAX-FREE EARNINGS

Accumulated wealth inside a Roth IRA is 100% tax-free and will not be taxed at the time of withdrawal. The power of this benefit is truly realized when there are significant capital gains within the portfolio, or in investments with longer time horizons (which allows greater time for compounding growth and magnification of your portfolio size).

TRUE CAPITAL GAINS

The Roth IRA is the only investment plan that truly lets you capture 100% of capital gains on a tax-free basis. If these same capital gains where made inside a 401k or traditional IRA plan, at the time of withdrawal they are CONVERTED to ordinary income at are taxed as earnings in that year. Traditional IRA plans and 401K plans have the effect of converting your portfolio capital gains into taxable income at the time of withdrawal.

LONGER COMPOUNDING

Unlike traditional IRA plans, Roth IRAs have no required mandatory withdrawal dates based on your age, and therefore allow you a longer time horizon for portfolio compounding and capital gains growth. Inside traditional IRA plans you are required to made mandatory minimum withdrawals (that will be taxable) after 70 years of age.

ESTATE TAX REDUCTION

Your heirs will not be required to pay tax on the benefits received from your Roth IRA plan. In contrast, taxed would be need to be paid by your heirs to receive the benefits of a traditional IRA plan.

EARLY WITHDRAWALS

In the event you need to access funds in the event of an emergency, the Roth IRA plans treat withdrawals differently that a traditional IRA. You don’t pay tax on withdrawals from a Roth IRA until the amount exceeds your actual contribution amounts paid in. This is not true of an IRA, and you will also face an additional early withdrawal penalty in many cases.

IS A ROTH IRA RIGHT FOR YOU?

In this article we have covered 7 of the powerful investment benefits you can reap holding a Roth IRA plan. Only your professional investment advisor can advise if a Roth IRA is right for your circumstances. Take the time to learn more about the power of a Roth IRA plan and contact your advisor today. It may be the best investment move you ever make.

About the Author

S.A. Smith is a freelance writer, contributor, and editor of the Roth IRA 401k information portal.

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Initial dividend yields

The initial dividend yield is the share of its profits that a company pays to its shareholders. The dividend is generally paid every six months. Not all of the company’s profits are paid in dividends. A company’s Board of directors will usually decide how much of the profit should be distributed back to the shareholders and how much should be ploughed back into the business to increase further the company’s worth. In some cases, the Board may decide to re-invest the entire profit

Tax

Tax benefits from shareholdings are available because many companies pay tax on their profits, meaning investors receive tax credits on the dividends they receive. Shareholders may pay little or no tax on the dividends they receive.

Most shares are a liquid investment

That is, they can be bought and sold as required. Selling a property can take months. Selling a share can take seconds. Shareholders can choose to divest themselves of just a portion of their holdings in a particular company, or they can sell the lot. Such an option is not available with property.

Shares have a definite value

It is easy to ascertain the true value of shares. Another advantage is that the true value of a share investment can easily be ascertained. It is as simple as looking up the daily share market results in the newspaper or on your computer. If only it was that easy to value a property.

Diversification

Creating a share portfolio enables you to invest in a number of industry sectors. By investing in companies operating in different industry sectors, you minimise losses from one badly performing sector. As one sector suffers a downturn, another may be experiencing growth. This is one of the major reasons that a well-balanced share portfolio invariably outperforms many other types of investments.

Jon Lynch is Marketing Manager of the Capital Intelligence Group of companies, including HomeTrader - Australia’s leading stock market education centres. We focus on teaching you how to create wealth through the share/stock market using a customised trading plan or system that is right for you, your situation and your goals. Visit our website and register for your free introductory DVD “Learn To Make Money On The Stock Market” at http://www.learnshares.com.au

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