3 Must-Have Business Agreements

March 22, 2011

Hollywood movie mogul Samuel Goldwyn, founder of MGM, once said: “A verbal contract isn’t worth the paper it’s written on.” It’s a good idea for small business owners to put agreements in writing. Here are three agreements that you should definitely consider getting in writing.


Confidentiality Agreement
Your company many not have a secret formula as valuable as those used by Coca-Cola and KFC, but every company has some information that it does not want to become public. Whether customer lists and pricing information or new products and processes, you have valuable business secrets. To help protect that info, use a confidentiality agreement (also called a nondisclosure agreement).

A confidentiality agreement is a contract signed by your employees or any third parties with whom you intend to share confidential information. By signing the agreement, the employee or third party agrees not to share that information. For example, if you’re considering a joint venture with another company, you’ll likely need to divulge certain information about your business; make sure it remains confidential by having an agreement in place before you discuss it.

Find free sample confidentiality agreements at:

Buy-Sell Agreement

If you have co-owners in your business, it’s wise to decide what happens to an owner’s interest when he or she retires, dies, or just wants out. This can be settled by the terms of a buy-sell agreement.

The agreement can be constructed in several ways:

  • Cross-purchase agreement, in which the remaining owner or owners buy out the interest of the departing owner. This type of agreement works best if there are only two owners in a business; it gets cumbersome when multiple owners are involved.
  • Redemption agreement, in which the company buys back the interest of the departing owner. This type of agreement works best when there are several owners.
  • Hybrid agreement, which can include both a purchase and buyback.

The buy-sell agreement should be made when the company is started, but can be created at any time.

Here are some features to include:

  • The type of buy-sell agreement (e.g., cross-purchase agreement).
  • A list of triggering events, such as retirement, disability, personal bankruptcy, divorce, or death.
  • A mechanism to determine the value of the departing owner’s interest. This can be a formula clause in the agreement, a requirement that an appraisal be obtained at the time of the triggering event, or some other method. It’s usually not a good idea to set a fixed value in the agreement because it may not reflect changes in value by the time of the triggering event.
  • The funding that will be used to pay for the buyout. Life insurance usually is used for buyouts at death; other funds must be used for buyouts for other triggering events.

Find free sample buy-sell agreements at:

Independent Contractor Agreement

Many businesses hire contractors as a way to lower operating costs while still getting things done. The problem is that the IRS and the states will look at how you classify your workers, and if it’s determined that your contractors are really employees, you are liable for payroll taxes, employee benefits, workers compensation, and unemployment coverage for them, too.

Worker classification is primarily based on the degree of control you exercise over the workers. One factor in determining control is the relationship of the parties. If you and the workers agree up front that the relationship involves independent contractors and is not an employer-employee relationship, this helps to avoid reclassification of workers as employees. A good way to show the relationship is with an independent contractor agreement.

The agreement should include the following points:

  • A statement about the relationship of the parties.
  • A statement that the worker acknowledges responsibility for taxes and insurance.
  • Language bolstering independent contractor status, such as that the worker is required to furnish his/her own tools

While the agreement is not binding on the IRS, it can help demonstrate worker classification if the IRS has questions.

Find free sample independent contractor agreements at:

Bottom Line

While sample agreements may be useful in getting ideas for your situation, it is highly advisable to have any agreement you prepare reviewed by your attorney. Your attorney can tailor your agreement to your company’s specific needs and make sure it complies with the laws in your state.

By Barbara Weltman

Barbara Weltman is an attorney, author of several business books including J.K. Lasser’s Small Business Taxes, and trusted professional advocate for small businesses and entrepreneurs. She is also the publisher of Idea of the Day® and her monthly e-newsletter Big Ideas for Small Business®; both are available at www.barbaraweltman.com, and host of Build Your Business Radio. Follow her on Twitter @BarbaraWeltman.

 

Source:  http://www.openforum.com/idea-hub/topics/managing/article/3-must-have-business-agreements-barbara-weltman?cid=em-smartbrief


5 Tax Penalties You Can Easily Avoid

March 22, 2011

Would you toss a wad of cash into the wind and watch it fly away? Probably not. So why would you incur tax penalties that cost you money and aren’t even tax deductible? You shouldn’t. Avoid these five tax penalties and you won’t be caught watching your hard-earned money flutter away.

Late Filing Penalty

There are fixed deadlines for filing various tax returns and penalties for missing these deadlines. For example, if you fail to file your personal income tax return on time (this year it’s April 18, 2011), you are subject to a late filing penalty. The penalty is 5 percent of the tax due for each month you’re late, up to a maximum of 25 percent. If the return is more than 60 days late, the minimum penalty is the lesser of $135 or 100 percent of the tax due. For partnerships and S corporations, the late filing penalty is $195 for each month or part of a month the return is late, multiplied by the total number of owners during any part of the year, up to a maximum of 12 months.

How to avoid the penalty: If, for any reason, you cannot file on time, request a filing extension by the return’s due date. For individuals and partnerships (including most limited liability companies), the filing deadline for the 2010 return is April 18, 2011.

* Individuals (including sole proprietors and one-person limited liability companies) can request a six-month extension (to October 17, 2011) on Form 4868.

* Partnerships can request a five-month extension (to September 15, 2011) on Form 7004.

The filing deadline for corporations (both C and S) was March 15, 2011. Corporations can request a six-month extension (to September 15, 2011) on Form 7004.

Late Payment Penalties

Federal income tax is due on the return’s original due date, regardless of any filing extensions. The late payment penalty is 0.5 percent of the tax due; the maximum penalty is 25 percent. In addition, there are interest charges for late payments.

How to avoid the penalty. Pay the tax on time, even if this means requesting an installment payment agreement on Form 9465 or by charging the outstanding amount to a major credit card (find authorized credit card processors).

If you fail to pay on time, you can still avoid the penalty by showing reasonable cause for the lateness. Reasonable cause includes having paid (through withholding, estimated taxes, and additional payments) at least 90 percent of the taxes due.

Estimated Tax Penalties

If you are self-employed, you probably need to pay estimated taxes to cover your payments for the year. Payments are due four times each year; you cannot wait until you file your return to make a single payment. If you fail to pay minimum amounts, you are subject to underpayment penalties. Essentially, this is an interest charge that is adjusted each quarter. The rate for the second quarter of 2011 is 4 percent.

How to avoid the penalty. Figure estimated taxes based on one of two safe harbors by paying the following amount over the four installments:

* At least 90 percent of the taxes due for the current year.

* At least 100 percent of the taxes shown on the return for the prior year (110 percent if your adjusted gross income in the prior year was more than $150,000 or more, or more than $75,000 if married and filing separately in the current year).

Note: Different percentages apply to farmers and fishermen. Consult a tax professional.

Late Employment Tax Deposits

If you have employees in your business, you have certain payroll tax responsibilities. This includes withholding income taxes and the employee share of FICA (Social Security and Medicare taxes) from their paychecks as well as paying the employer share of FICA and the FUTA (federal unemployment tax). If you fail to deposit these taxes with the government on time, or if you deposit less than the full amount owed, you are subject to a penalty ranging from 2 percent to 15 percent; the quicker you make the late deposit, the lower the penalty rate will be.

How to avoid the penalty. Make deposits using EFTPS.gov, which is a free electronic payment system. You can schedule your payments in advance so that they are automatically transferred from your bank to the U.S. Treasury on the due date.

Note: Very small employers – those permitted to file Form 944 because their annual payroll taxes do not exceed $2,500 – can pay the taxes with their annual return.

Late Sales Tax Deposits

If your state levies sales taxes, you must collect them and pay them in a timely manner. Each state has its own rules regarding payments and penalties. Even though you do not actually pay the sales tax – your customers do – you must transfer the funds to your state or face penalties.

How to avoid the penalty. Learn about your sales tax obligations from your state.

Late Information Returns

In the course of your business, you are required to provide various information returns, such as 1099s, to the IRS and to service providers and others. If you fail to do so and do not have reasonable cause for the failure, you are subject to a penalty. The longer you fail to file or submit full information, the greater the penalty (explained in instructions for certain information returns).

How to avoid the penalty. Learn which forms you are required to file. If you discover that you failed to submit a form on time, correct your mistake as quickly as possible to minimize penalties.

Bottom line

Work with a knowledgeable tax professional who can help you meet your filing obligations and avoid penalties. Money spent avoiding these and other tax penalties is definitely not money thrown into the wind.<br></br>
By Barbara Weltman<br></br>
Barbara Weltman is an attorney, author of several business books including J.K. Lasser’s Small Business Taxes, and trusted professional advocate for small businesses and entrepreneurs. She is also the publisher of Idea of the Day® and her monthly e-newsletter Big Ideas for Small Business®; both are available at www.barbaraweltman.com, and host of Build Your Business Radio. Follow her on Twitter @BarbaraWeltman.

Source:  http://www.openforum.com/idea-hub/topics/money/article/5-tax-penalties-you-can-easily-avoid-barbara-weltman?cid=em-smartbrief


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