Category Archives: Business Planning

CTA – Beneficial Owner Information Filing Due Jan 1, 2025

Posted on by
Reply

The purpose of the Corporate Transparency Act (CTA) is to create a national database of those who control entities in the US (including owners, principals, control persons of LLCs, C Corp, S Corp, LPs, and other closely held entities). The database will identify the human beings behind these entities. This law is part of an increasing effort to combat money-laundering, terrorism, tax evasion, and other financial crimes. The stated goal is to provide law enforcement with the ability to strip “US shell companies” of anonymity that can hide illicit financial activity and funding of terrorism. But this database will require information from every entity owner and yet few business owners know about this upcoming filing requirement.

There are over 33 million small businesses in the US and an increasing number of bad players caused Congress in 2021 to enact the CTA [Ref 1] as part of the National Defense Authorization Act [Ref 2]. The CTA created a new reporting requirement for “Beneficial Owners Information” (“BOI”) to the Treasury Department’s Financial Crimes Enforcement Network (or FinCEN).

With the deadline for pre-existing companies to file approaching (January 1, 2025 and even sooner for new companies created during 2024) and court challenges not yet staying this deadline, small business owners (and other entity owners) need a deeper understanding of how to handle their own BOI reporting requirements.

Ultimately, most of our business/entity owner clients will file a relatively simple BOI report. Some companies/entities with more complex ownership and leadership structures might require the help of outside legal counsel since CPA/CFP are not legally permitted to interpret this law for clients.  It is advisable to take the time to read over the FinCEN FAQs [Ref 3] and Small business Guide [Ref 4] and determine if your firm has to file and if so whether you will need legal advice to complete this filing. We can help guide you but can’t interpret the law for you.

Who Needs To Report Their Beneficial Ownership Information (BOI)

At a high level, any company that was created by filing a document with a secretary of state or similar state-level office in the U.S. is a “reporting company” or entity that is required to file this BOI report. In practice, the requirement applies to business entities like Limited Liability Companies (LLCs), Limited Liability Partnerships (LLPs), and corporations (C and S Corp) that are created by filing paperwork with the state(s) where they do business. It does not, however, appear to apply to unregistered entities like sole proprietorships and partnerships. In addition, there are 23 different types of companies that qualify for an exemption to the BOI. The FinCEN’s Small Entity Compliance Guide outlines the specific criteria that companies must meet to qualify for each type of exemption [Ref 4].

Please be aware that even if your company has been inactive or recently dissolved it may still need a BOI filed. Lastly, irrevocable trusts may also be required to file.

What Information will be Required?

The Beneficial Ownership Information (BOI) report itself is fairly simple and consists of 3 sections (plus an introduction page and a submission page): The first section requires business identification whereas the second and third sections request personal identification (this includes state ID, US passport or foreign passport). We encourage any beneficial owner to not file personal information directly in the BOI but instead create a FinCEN Identifier number. Creating this unique FinCEN ID number by the beneficial owner will require the upload of personal financial identifiers only once (under this FinCEN ID). Once created the FinCEN ID can be used in lieu of entering personal information directly in the BOI filing.

Please keep in mind that this filing is a separate process from tax filings and requires disclosure of personal information. This privacy invasiveness has led to legal challenges earlier this year, but none have yet stayed the BOI filing deadline. Given that the penalty is up to $500 per day for failing to file we encourage you to determine how and when you will file your entities BOI. We will all continue to monitor the legal challenges and the filing deadline since there may be announcements just prior to year-end.

FinCEN has put together a comprehensive FAQ on the specifics of the requirements [Ref 3], as well as a Small Entity Compliance Guide that we recommend reading [Ref 4]. These should help owners understand their obligations under the new rules. Please familiarize yourself on what will or will not be needed for your firm/entity.

Reference Links mentioned above:
[Ref 1] CTA details: https://www.fincen.gov/sites/default/files/shared/Corporate_Transparency_Act.pdf
[Ref 2] National Defense Authorization Act details: https://www.congress.gov/116/bills/hr6395/BILLS-116hr6395enr.pdf
[Ref 3] FAQ on BOI: https://www.fincen.gov/boi-faqs
[Ref 4] FinCEN Small business entity guide on BOI filing: https://www.fincen.gov/sites/default/files/shared/BOI_Small_Compliance_Guide.v1.1-FINAL.pdf
[Ref 5] BOI filing: https://boiefiling.fincen.gov/

Edi Alvarez, CFP®
BS, BEd, MS

www.aikapa.com

Early Retirement: Distributions Without Penalty Before Age 59½

Posted on by
Reply

If you are considering retiring early and would like to use your pre-tax retirement accounts before age 59½ then you have significant planning to ensure you make the most of your retirement assets. One possibility is to use a 72(t) exception to avoid the early withdrawal penalty from pre-tax accounts. This 10% penalty is in addition to ordinary income tax.

An exception to the 10% penalty is the 72(t)(2)(A)(iv) OR “a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the employee or the joint lives (or joint life expectancies) of such employee and his designated beneficiary”. This exception allows for regular payments from pre-tax accounts but must be tailored to your specific situation.

In general, the 72(t) exception requires that a calculated payment be withdrawn from a pre-tax account annually for the longer of five years or at age 59½. The advantage is that the 10% penalty can be avoided but the disadvantage is that changes to withdrawals or distributions are NOT permitted, or penalties apply. When calculating the annual payment, we consider the age of the pre-tax account owner, the balance in the pre-tax account, and the current interest rate. Higher payments are obtained at later ages, with higher account balances and at higher interest rates.

To help you visualize how the 72(t) amortization works, the table below shows annual payments for a single person at different ages on an account with $100K in pre-tax savings given that the current interest rate is at 6.16%.

Those thinking to retire early should consider using pre-tax assets (with the 72(t) exception) to support their planned cash flow but only if it is the best way to deploy all available assets. When using the 72(t)-exception you need to understand the implications of the rules since large penalties apply for errors or misunderstandings. If you are considering retiring early, we would determine how to best deploy your assets throughout your retirement plan.

Edi Alvarez, CFP®
BS, BEd, MS

www.aikapa.com

Small Business Owners: New BOI Filing Under Appeal

Posted on by
Reply

The potential for harm caused by less-legitimate entities compelled Congress in 2021 to pass the Corporate Transparency Act (CTA), which created a new requirement for many small businesses (mostly LLCs and corporations) to report information on their “beneficial owners”. The main purpose is to uncover ownership within ‘Shell’ companies. The Beneficial Ownership Information (BOI) report will need to be filed with the Treasury Department’s Financial Crimes Enforcement Network (FinCEN). It requires filing contact information on those who own at least 25% of, or who otherwise have substantive control over the business. Failure to file (or file it incorrectly) will result in penalties of up to $500 per day.

Most companies with just one or a handful of owners will have relatively simple BOI reporting and we can help you complete these (for which the primary hurdle is simply remembering to submit an initial BOI report ahead of the January 1, 2025, deadline for pre-existing companies). On the other hand, companies with more complex ownership and leadership structures will need legal assistance to ensure they record all beneficial owners.

But before you begin looking at filing your BOI or whether you will be required to file, keep in mind that the CTA was ruled unconstitutional earlier this year by U.S. District Judge Liles C Burkeand is currently under appeal. It is generally accepted that this is a valuable anti-money laundering tool and will be ruled constitutional.

We’ll monitor and revisit BOI filing in November/December with our business owner clients.

Edi Alvarez, CFP®
BS, BEd, MS

www.aikapa.com

Social Security Benefits Primer

Posted on by
Reply

Social Security benefits were never intended to be the sole financial support during retirement but for 21% of retirees Social Security benefit is the only source of income. For most American workers, Social Security benefits are the only guaranteed retirement income that is also inflation adjusted each year.

All workers in America are entitled to pay into Social Security and based on their pay history, to receive a lifetime income each month starting from ages 62 to 70.

Ideally prior to retirement, you’ll also maximize other income sources that include taxable savings, IRAs, ROTH, Qualified plans (401K, 403b, 457b), annuities, deferred compensation, and employer pension plans.

Since your future Social Security benefit is calculated from your Social Security work history, you must ensure (and correct if necessary) that this history has been recorded correctly at www.socialsecurity.gov/myaccount OR the new www.ssa.gov/myaccount.

Social Security benefit calculation uses your top 35 highest earning years and projects your estimated benefit at your FULL RETIREMENT AGE (FRA).

Your FRA is based on your birth year and, as you can see on this table, it has been increasing. In fact, since 1983 when the FRA was 65, it has been increased gradually so that by 2025 (for those born in 1960 or later) the FRA will be 67. To understand Social Security, you must first determine your FRA.

When can you collect Social Security? At FRA, you can file and receive your full benefit (100%) based on the amount of Social Security tax paid to your Social Security number. The earliest you can collect Social Security benefits on your record is at age 62 (when your FRA amount is reduced ½% for each month or 6% less each year until FRA) and the latest at age 70. If you delay past your FRA, you earn Delayed Retirement Credits (DRC) and for each month it will grow two-third of a percent or 8% per year until age 70.

Example of how benefits are calculated: If you were born in 1960 and your FRA amount is $1K/month then collecting at age 62 will result in a lifetime amount of $700/month but delaying until age 70 would result in $1,240/month (plus annual COLA adjustment).

When creating your financial plan, we will consider different Social Security timing strategies based on your financial and longevity expectations. When deciding on your best timing we always request that you consider your health, your family’s longevity, and known increases in population longevity.

Compared to what you earned, what can you expect to receive?
As an example, an average earner ($58K) could receive $1,907 or $23K per year in benefits for life, starting at FRA. On the other hand, those who paid Social Security at maximum earnings for 35 years would receive $3,822/month or $45K per year if 2022 was their FRA.

What if you take early benefits while still working? It seldom makes sense to work and take Social Security benefits early because your benefits are reduced by $1 for each $2 earned above an annually set earning level (in 2024 you can only earn up to $22,320 per year ($1,860/month) before your benefits are reduced). Once you reach FRA your Social Security benefits are NOT reduced (regardless of earnings).

We encourage each of you to work with us to review your Social Security history and then use your financial plan to make the best Social Security timing decision for you.

Applying for Social Security should be started three to four months prior to your chosen Social Security benefit start date. You would apply online at www.socialsecurity.gov or call (800-772-1213) or go to the local Social Security office.
One last and very important cyber security reminder: Protect your Social Security log in information (or credentials) – make certain that you are using a secure device when you log into your account.

Edi Alvarez, CFP®
BS, BEd, MS

www.aikapa.com

SECURE Act 2.0

Posted on by
Reply

The first “Setting Every Community Up for Retirement Enhancement” Act (SECURE Act) was passed December 2019 eliminating the ‘stretch IRA’ for non-spouse and changing the RMD (Required Minimum Distribution) age to 72. These were changes that impacted everyone across the board. With the Secure Act 2.0, congress appears to be reversing its prior leanings and instead allowing Roth conversions. The reversal towards ‘Rothification’ (encouraging ROTH savings/conversions) appears to be with the goal of increasing tax revenues today. It is fair to say that no single provision made by the SECURE Act 2.0 appears to have the same impact across so many as the elimination of the stretch, which now requires many inherited distributions to complete within 10 years, rather than spreading distributions over the entire beneficiary’s lifetime. Even so, 2.0 has so many more detailed provisions that it will impact most in some way. It is already evident that implementation will take more effort than the first SECURE Act.

Some of the new provisions included in SECURE Act 2.0 will be implemented over the next two years and require preparation in 2023. We will explore the provisions that may be relevant to your specific situation during our meetings this year. Let us know if you have any questions.

Edi Alvarez, CFP®
BS, BEd, MS

www.aikapa.com

Differences in Finances: Pre-retirement and Retirement

Posted on by
Reply

I am sometimes asked how our work differs as clients move from a period in which they are accumulating assets (pre-retirement savings) to a period in which they withdraw/distribute from their assets (retirement or financial independence). This becomes a critical question as individuals transition out of earning years and begin to implement their retirement plan. As a matter of fact, our tasks are very different in each case though our role remains the same. Our role is to provide financial guidance to help make the most of available assets given current realities and future goals.

To help you understand the various financial tasks that occur in these two distinct financial planning periods, I’ve outlined some of the major tasks that we perform in pre-retirement (accumulation phase) and in retirement (distribution phase).

During the accumulation period, our focus is to encourage you to integrate finances with all major decisions. We work with you to save as much as possible using tools or techniques that we know will likely be successful in your situation and come up with ways that work better for you. We also support you to define spending that is meaningful because we want spending to be sustainable and satisfying later in life. Annually, we help set spending and savings goals and ask you to hold yourself accountable because with accountability comes financial self-confidence. We also want you to experience the ups and downs of portfolio behavior over a significant period so that overtime you will learn to relinquish unproductive human emotions that are associated with daily monitoring and fretting over your portfolio total (which feeds fear and greed). We want you to internalize that what really matters is that the portfolio delivers as expected to meet your goals. It is therefore important that during accumulation (when you are not dependent on the portfolio), you can confirm that the returns used to create your financial plan are attainable by the average return of your own portfolio (not a model or generic return). Overall, we want you to identify how you can best work with finances and gain confidence in your own ability to make financial decisions regardless of the obstacles.

During retirement we are more involved with your cash flow management as we help you transition to financial independence by implementing your financial plan. This requires providing the needed cash flow from your accumulated portfolio. In retirement we annually setup monthly cash-flow distributions (or an annual lump sum distribution) from the portfolio and we internally estimate the tax liability so that we have the best after tax result for each distribution. We find that tax planning also helps prevent unexpected increases in future Medicare premiums, helps make Roth conversion decisions, and helps decide on the best timing for Social Security benefits. RMD (Required Minimum Distributions which begin at age 72) are also calculated and implemented based on what is best for your overall finances. We may recommend QCD (Qualified Charitable Distributions, only for those at age 70.5) or DAF (Donor Advised Funds which are available to anyone who wants to make significant or regular charitable donations) in some cases. Finally, we serve as your financial resource or partner to support you during major financial decisions.

Let us know if you have different questions or want more details on what is currently most important in your life, regardless of whether you are in pre-retirement or already enjoying your well-earned financial independence.

Edi Alvarez, CFP®
BS, BEd, MS

www.aikapa.com

Resilience of Leaders

Posted on by
Reply

Resilience is a required skill that is learned and leads to tangible results for all of us
and particularly for small business owners. It is during a crisis that a resilient leader
will be able to take calculated risks and think outside the box to create opportunities
and forge new ways to meet new challenges. It takes an immense amount of grit and
dedication to try new things and to find a new way particularly when things don’t work
out as expected. A resilient leader will always find a way to move forward. I was
encouraged to read a recent survey (The American Psychological Association (APA)) of
1,000 business owners which found that 61% are optimistic about business in 2021
(Millenia optimism was even higher at 75%). The resilient optimism of entrepreneurs
is inspiring. Here are takeaways from resilient entrepreneurs during this crisis:

Revisiting definition of success: I always encourage everyone to know their
definition of success and not let it be defined for them. The pandemic has caused many
to rethink their goals in life and what they find is truly valuable to them. For some, this
is about how they live each day and for others it is about their legacy. Your definition of
success allowed you to make tough decisions with confidence. It should allow you to be
at peace regardless of the outcome.

Changing what your business does: The pandemic has forced change or
disruptions that have illuminated a new path for some businesses. The American
Express Entrepreneurial Spirit Trendex found that 76% of businesses have already
pivoted or made a change and 73% of those that pivoted say they will change again in 2021.

Resilience allowed many to keep those things they most valued while making
essential changes. In some cases, new businesses were started and in others a new way of doing the same business was developed.

Changing the tools used: It is important that a business be aware and ready to
implement useful tools when appropriate. A study from Google and the Connected
Commerce Council found that 75% of business owners are using more digital tools
since early 2020. Among those who use these tools, the majority project less revenue
loss and more business revenue. These tools do require an investment of time to
evaluate since there are too many technology tools were the hype exceeds the
deliverable.

Starting a new business: According to the increase in Employer Identification
Numbers (EINs) applications in quarter 3 of 2020, we have a dramatic increase in new
businesses compared to 2019. Entrepreneurs are starting new businesses at record
speeds. Resilience and optimism are essential characteristics of entrepreneurs who
take the financial and personal risks to create, organize and operate a business.

Pausing your business: For some businesses, temporarily ceasing operations has
been hard but a necessary financial decision. It takes a lot of courage to go down this
road either to allow for an easier exit to meet personal goals or, more often, to allow
the business to restart and survive once it is reshaped to meet the new challenges.

Edi Alvarez, CFP®
BS, BEd, MS

www.aikapa.com

How does a tax-deferred IRA differ from a Roth?

Posted on by
Reply

Tax-deferred savings (to an IRA or employer pre-tax retirement plan) reduce your tax liability today BUT are fully taxable (including gains) on withdrawal. The tax-deferral accounts are an excellent way to minimize your current taxable income. The goal is to use what would have been tax dollars as part of your savings. The main rules to keep in mind are that withdrawals shouldn’t be expected before age 59.5 AND that you MUST take mandated distributions (called RMD) when you reach age 72 (according to the new tax rules). Unfortunately, these accounts are now also not inherited in the same beneficial manner as in the past (these now follow the new Secure Act of 2019 rules).

A Roth on the other hand, doesn’t provide tax deferral when saved but it does provide tax-free dollars, on withdrawal. Contributions to a Roth are limited in amounts each year and not easily available for high earners. Whereas Roth conversions require income tax payment on converting pre-tax IRA dollars, not everyone is permitted to make Roth conversions. Fortunately, Roth IRAs are not impacted by the Secure Act of 2019 and remain free of RMD. They are also still inherited tax-free to individual or trust beneficiaries and are likely to be favored for those considering leaving a legacy.

As income tax rises (likely, given our debt load), Roth accounts will become even more powerful tools in retirement for those in the higher tax brackets. Currently they help us regulate your taxable income and keep taxes and Medicare costs reasonable during retirement.

We’d like to consider Roth conversions for you in years when you expect a lower tax rate. It is particularly useful when tax-deferred accounts are undervalued and when you have accumulated large tax-deferred accounts.

The basic takeaway is that a tax-deferred account should be maximized during years with high earnings (to reduce taxes) and high tax rates. When you expect a low earning year then a Roth conversion may provide you with an ideal situation BUT ONLY IF your retirement tax rate is expected to be high enough to trigger additional taxes or Medicare costs.

Edi Alvarez, CFP®
BS, BEd, MS

www.aikapa.com

Your Portfolio Allocation and Emotional Reactions: The Coronavirus and Portfolio Discipline

Posted on by
Reply

Here we go again – we’ve been down a similar road before, so none of this is news to those who have been with us through prior overreactions by market participants.

Volatility is part and parcel of participating in the market. When fear grips the market, selloffs by those who react to that fear provide portfolio opportunities for those who understand and adhere to a strategy. It is AIKAPA’s strategy to maintain your risk allocation and either ride out the volatile times or rebalance into them. Meaning that if you don’t need cash in the short-term, we buy when everyone else is selling.

As news of the Coronavirus (or other events outside of our control) stokes fear and uncertainty on a variety of fronts, it is only natural to wonder if we should make adjustments to your portfolio. If you are reacting to fear, then the answer is a resounding NO. On the other hand, if you are applying our strategy in combination with an understanding of the impact on business, then the answer is likely YES. When an adjustment is indicated we look for value and BUY while selling positions that are relatively over-valued. If the market continues to respond fearfully (without a change in value) then we will likely continue to buy equities and may sell bonds to fund those purchases. The only caveats to this strategy are that we must know that you don’t have short-term cash flow needs, that we stay within your risk tolerance, and that we are buying based on current value (keep in mind that value is based on facts not fear).

If you feel compelled to do something, then consider the following:

  1. Contact your mortgage broker and see if it makes sense to refinance (likely rates will drop soon after a significant market decline).
  2. Seriously examine the impact this has on your life today and let’s talk about changing your allocation once markets recover.
  3. Review the money you’ve set aside for emergencies and prepare for potential disruptions if these are likely.
  4. Business owners should consider the impact (if any) on their business, vendors and employees. Particularly important will be to maintain communication with all stake holders and retain a good cash flow to sustain the business if there is a possibility of disruptions.
  5. Regarding your portfolio, if you have cash/savings that you want to invest, this is a good time to transfer it to your account and have us buy into the market decline.

Market changes are a normal part of investing. Risk and return are linked. To earn the higher returns offered by investing in stocks, it is necessary to accept investment risk, which manifests itself through stock price volatility. Large downturns are a common feature of the stock market. Despite these downturns the stock market does tend to trend upwards over the long-term, driven by economics, inflation, and corporate profit growth. To earn the attractive long-term returns offered by stock market investing, one must stay invested for the long-term and resist the urge to jump in and out of the market. It has been proven many times that we can’t time stock market behavior consistently and must instead maintain portfolio discipline (if you want a historical overview of markets, see the “Market Uncertainty and You” video on our website www.aikapa.com/education.htm).

It is your long-term goals and risk tolerance that provide us with our guide to rebalancing and adjusting your portfolio, not short-term political, economic or market emotional reactions. In your globally diversified portfolio, we will take every opportunity to rebalance and capture value during portfolio gyrations. This IS the benefit of diversification and working with AIKAPA.

Edi Alvarez, CFP®
BS, BEd, MS

www.aikapa.com

Business Owners: Hiring family

Posted on by
Reply

One of the most common reasons individuals become business owners is to have more control over their time and financial decisions—to create and be able to drive their own vision in an environment that they choose, and hopefully enjoy.

Those decisions include, among others, what types of solutions the business will offer, how clients will be serviced, which vendors the business will use, and who the business will hire and fire.

Moreover, the IRS’s website states, “One of the advantages of operating your own business is hiring family members.” The IRS is very clear that businesses can and should hire family members. They know that at times family members are the glue that keeps small businesses functioning and often provides owners with the time needed to lead and grow their companies. Small businesses are an essential part of the US economy. The most common family members hired by small companies are spouses since the success of a small business owner is often entwined with the support they receive from their life partner. This is so common that even 401K plans for single-owned businesses include spouses. Though more common, hiring family members can go beyond the spouse and includes anyone that is related, a sibling, a parent AND even a child. [see more details on the IRS perspective on hiring family https://www.irs.gov/businesses/small-businesses-self-employed/family-help].

When hiring family members (either as employees or as 1099 consultants) a business owner must adhere to the same rules as for nonfamily members. From a strictly operational point of view, one clear advantage of hiring family is that a family member can provide support or services that the owner, for whatever reason, is uncomfortable having performed by a nonfamily member. This may be particularly true when the business wishes to keep its financial reports “for family eyes only” or if the business relies on sensitive proprietary information or compliance rules that could be jeopardized by employee turnover. Similarly, a family member can provide cohesion and ensure the retention of corporate knowledge when employees leave the firm – this is invaluable to many small businesses. On the other hand, owners might hire a parent or a child solely to provide them with a taxable income while they engage in work that benefits the business owner’s vision.

The business owner does have the responsibility of deciding on a fair level of compensation for all employees. To avoid potential conflicts within the firm, compensation ought to be similar to that of any regular employee performing the same function. Another more flexible option, is to hire family members as 1099 consultants. Consultants have more flexibility on the tasks they can perform and the compensation they are awarded.

Hiring family can be a straightforward way to reward family members who contribute to the success of the business. Providing spouses, siblings, children and even parents with taxable earnings while serving in roles that provide benefit to the business owner and the running of the business.

For business owners in high tax brackets, hiring family (who are in lower tax brackets) can garner meaningful tax relief. If hiring children, it also provides for “good parenting” opportunities and leadership development. The key to hiring your child is to strictly abide by standards of bona fide age-appropriate work, ensure a reasonable wage, and follow federal and state regulations relating to labor standards. Getting a handle on all of this, can feel overwhelming but it is actually fairly straight forward.

When hiring a minor (family or not) the Fair Labor Standard Act (FLSA) must be followed which has restrictive language on the type of employment for those under the age of 14. FLSA actually states the specific jobs that are permitted which include delivering papers, casual babysitting, or modeling/acting. Starting at age 14 the regulations only limit the amount of time (not the type of job) but also that the work doesn’t expose the minor to dangerous environments such as radioactive areas and working in demolitions (among others).

Hiring family as employees (rather than consultants) is a constant balancing act that requires careful consideration but can deliver financial benefits. It may be prudent, at least initially, to place hired family under the direct supervision of a trusted nonfamily employee that will have full authority over mentoring. This works well for minors but not so well with adults. The potential for unhealthy rivalries and vying for attention amongst siblings and hired staff can sour what is often an exceptional opportunity. Open communication and clear accountability is the key to success when hiring family as employees. Everyone involved must have a clear picture of where they stand, eliminating time wasted on misunderstandings and second guessing one another’s motives and intentions.

The process is a bit easier and the rules a bit more advantageous if family members have their own business (1099 reporting business) and are hired as consultants to support the business owner. In addition, as a 1099 consultant, they have the flexibility to also work outside the family business. Often their total earnings will be taxable at much lower tax brackets than they would be if it was earned by the higher earning business owner. They will also qualify for tax-deferral and social security on their net business earnings.

We encourage you to consider hiring family members particularly if you are a business owner with high earnings and high tax liability. We strongly recommend hiring family members when we discover that family already provide unpaid assistance to the business owner and are in need of financial support or need to increase their social security income.
Let us know if you are considering including a family member (parents, spouse or children are the most common) in your business. We’ll provide a summary of the benefits to you, your family and your specific business.

Edi Alvarez, CFP®
BS, BEd, MS

www.aikapa.com