Vista Tax Relief | Accounting and Tax Blog

What’s the Value of Your Business?

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Like most business owners, you have probably invested a lot of energy into growing your business. And like other business owners, you probably hope to exit your business at some point in the future with enough money to ensure your financial security. When the time comes to sell your business, you’ll have to determine its fair market value (FMV) to ensure you’ll receive a fair price. Since it is a difficult undertaking to assess fair market value, the assistance of an appraiser who specializes in business valuations is crucial.

Different Approaches

Business valuation professionals will typically use a variety of approaches to determine the value of a business.

An asset-based approach basically looks at a company’s balance sheet. If the valuation is based on a going concern, the company’s assets (net of depreciation) are listed and its liabilities are then subtracted. Generally, the resulting “book value” is adjusted to reflect the current market value of the company’s assets.

Earnings-based approaches assume that a business’s true value lies in its future wealth-producing abilities. One common approach involves capitalizing past earnings using a rate of return that a reasonable buyer would expect on the investment.

Market-based approaches attempt to establish the value of a business by comparing it to similar businesses that have recently sold. This approach works well for most businesses except sole proprietorships, since finding public information on prior sales of like businesses is difficult.

IRS Approach to Valuing a Business

It also may be helpful to look at the factors the IRS considers when determining the value of a business for tax resolution purposes. The IRS typically weighs the following factors when attempting to compute the fair value of a business:

  • The nature of the business and the history of the company
  • The future prospects of the economy at large and the business’s industry in particular
  • Book value and overall financial health
  • Earning capacity of the company
  • Dividend-paying capacity
  • Goodwill or other intangible value
  • Sales of the stock and the size of the block of stock to be valued,/p>
  • The market price of stocks of corporations engaged in the same or a similar line of business.

Timing of the Valuation Is Important

As a business owner, it makes sense to have your business valued long before you intend to sell it. Why? If it transpires that your business’s valuation is lower than you assumed, you will have sufficient time to implement various changes in your business that can drive up its value.

For more information on Business Valuation, call Vista Tax Relief at 480-916-2862 today!

Trusts Can Help Accomplish Numerous Goals

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Trusts are remarkably flexible and helpful planning tools. They can be used to protect and transfer assets to loved ones and to accomplish other goals, such as long-term asset management. Here’s a look at some of the reasons why you might consider creating a trust.

Manage Assets

If you have acquired significant assets, you understand that managing them requires time, effort, knowledge, and patience. You may feel that your time is better spent doing something other than managing your assets, or you may not be completely confident that you have the skill set to do so. There’s the additional concern of how you could manage your assets effectively if you were to fall ill or suffer an injury. A trust can help to alleviate these concerns by ensuring that your assets will be managed by a responsible trustee in such a way that will preserve them for you and your loved ones.

Protect Your Assets

We live in a litigious society and lawsuits are more common now than in the past. One of the most effective ways to protect your assets for the next generation is to place assets in a trust for your child instead of giving them to your child outright as a gift or bequest.

Facilitate Charitable Gifts

With a charitable remainder trust, you can gift assets to the charity of your choice without giving up the income from those assets during your life. A charitable lead trust pays income to a charity of your choice and then returns the trust’s remaining assets to an individual beneficiary when the trust ends. Both types of trusts offer tax advantages.

Protect the Interests of a Minor

A trust can be used to manage assets for the benefit of a child or grandchildren. A trust can be particularly helpful if you have concerns about the maturity or the spending habits of a beneficiary in that you can structure the trust to stagger distributions to the beneficiary throughout adulthood.

Provide for a Loved One With Special Needs

You can help ensure that a special needs child or adult relative will benefit after your death by creating a trust designed specifically to provide sufficient funds to take care of that individual. You can choose who you want to serve as trustee of this trust, and change the trustee if necessary, which can provide a degree of assurance that your wishes for the special needs person will be closely followed.

Trusts Are Flexible

Trusts offer individuals and families a high degree of flexibility. A trust established during your lifetime is called a living trust. One that is created in a will is called a testamentary trust.

Living trusts can be revocable or irrevocable. A revocable living trust generally names you or you and your spouse as trustee(s) and beneficiaries. As the creator of the trust, also known as the “grantor,” you can change the trust’s terms, add or withdraw funds, and end the trust if you wish. With a revocable living trust, you always retain control over the assets.

An irrevocable trust is intended to benefit someone other than the trust’s creator. In the trust agreement, you, as creator, specify who the trust will benefit, the manner of its operation, and the name of the person(s) (or institution) who will manage the trust. In general, you cannot change the terms of an irrevocable trust once it has been created.

Your financial professional can explain in greater detail the many ways you can use a trust to further your financial and estate planning goals.

For more information on Trusts, call Vista Tax Relief at 480-916-2862 today!

Adding Sector Funds to Your Portfolio

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Many mutual funds* and exchanged-traded funds (ETFs) buy stock in companies that represent a broad range of industries and economic sectors. However, some stock funds take a less diversified, more high-risk approach, investing only in companies active in a specific sector of the economy, such as utilities, health care, or information technology.

Background

There are 11 market sectors that have been identified under the Global Industry Classification Standard, a classification system developed by MSCI and S&P Dow Jones Indices to categorize companies traded on public exchanges. This system is recognized by the wider financial and investment community.

The 11 sectors are:

  • Energy
  • Materials
  • Industrials
  • Consumer Discretionary
  • Consumer Staples
  • Health Care
  • Financials
  • Information Technology
  • Communication Services
  • Utilities
  • Real Estate

Within these 11 sectors, there are 24 industry groups, 69 industries, and 158 sub-industries. Typically, a sector fund will only buy stock in companies that operate in one of these sectors or in a subsector.

Pluses of Investing in Sector Funds

Sector funds allow investors to invest in specific market sectors that may outperform the overall market. Investors can use these funds to try to capitalize on emerging developments and advances in various sectors of the economy.

Sector funds may also be used by investors who are attempting to take advantage of business cycles. Cyclical stocks are sensitive to the health of the economy and their prices tend to move up during periods of strong economic growth. Cyclical companies make goods and provide services that are in high demand by consumers when the economy is strong, such as autos and electronic goods. Defensive stocks are stocks in companies that produce goods and services that consumers keep buying even during a weakening economy. Because the demand for utilities, food, and other staples remains fairly constant through all economic phases, the stock prices of companies in this sector typically do not fluctuate too much during economic highs and lows.

Be Aware of the Risks

Sector funds involve risks associated with a portfolio that concentrates its investments in one sector and can experience extreme volatility. There is a higher risk of loss and investors should expect higher expenses and costs buying sector funds than they would buying an index fund.

In general, sector funds may be appropriate for experienced, informed investors who can handle a high level of investment risk and have a long-term investing horizon. Before investing in sector funds, it may be advisable to own a portfolio of broadly diversified funds.**

As always, be sure to consult with a financial professional before investing, especially in assets that are complex and may present a higher than average investment risk.

*You should consider the fund’s investment objectives, charges, expenses, and risks carefully before you invest. The fund’s prospectus, which can be obtained from your financial representative, contains this and other information about the fund. Read the prospectus carefully before you invest or send money. Shares, when redeemed, may be worth more or less than their original cost.

**Diversification does not ensure a profit or protect against loss in a declining market.

For more information on Sector Funds, call Vista Tax Relief at 480-916-2862 today!

How to Set Up an Installment Agreement with the IRS: A Step-by-Step Guide

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red arrow down the stock market

When you owe taxes to the IRS and cannot pay the full amount immediately, an installment agreement can help you break down your tax debt into manageable payments over time. This guide will explain what an installment agreement is, who qualifies, and how to set it up with the IRS.

What Is an Installment Agreement?

An IRS installment agreement is a payment plan that allows taxpayers to pay their tax debt in monthly installments rather than in a single lump sum. This can help alleviate the burden of a large tax bill while ensuring compliance with IRS payment requirements. It’s important to note that while an installment agreement allows you to pay over time, interest and penalties will continue to accrue until the debt is fully paid.

Types of Installment Agreements

There are several types of installment agreements available, depending on the amount you owe and your financial situation:

  1. Short-Term Payment Plan: If you can pay the full amount within 180 days, you may qualify for a short-term payment plan. No setup fee is required, but interest and penalties will still apply.
  2. Long-Term Payment Plan (Installment Agreement): If you need more time (typically more than 180 days), the IRS offers long-term payment plans. These require a setup fee but allow you to pay off your debt over several years.
  3. Guaranteed Installment Agreement: Available for taxpayers who owe less than $10,000 and can pay off the balance within three years.
  4. Streamlined Installment Agreement: Available for those who owe $50,000 or less. No financial statement is required, and you can pay off the balance within 72 months.

Step-by-Step Guide to Setting Up an Installment Agreement

Step 1: Determine If You Qualify

Before applying for an installment agreement, check whether you meet the IRS requirements:

  • You must have filed all required tax returns.
  • You owe less than $50,000 in tax, penalties, and interest (for streamlined agreements).
  • You can pay off the balance within the time frame set by the IRS (typically six years).

If you owe more than $50,000, you may need to submit additional financial information to the IRS.

Step 2: Gather Necessary Information

Before applying for an installment agreement, make sure you have the following information on hand:

  • Social Security Number (SSN) or Employer Identification Number (EIN)
  • Your most recent tax returns
  • The total amount you owe, including penalties and interest
  • Your desired monthly payment amount based on your budget

Step 3: Apply Online or by Mail

You can apply for an IRS installment agreement through one of the following methods:

  • Online Payment Agreement (OPA): This is the fastest and most convenient way to apply. Visit the IRS website at irs.gov/opa to submit your application online. You will need to create an account if you don’t have one already.
  • Form 9465 (Installment Agreement Request): If you prefer to apply by mail, fill out Form 9465 and send it to the IRS. This form allows you to request a monthly payment plan and specify your payment amount.

Step 4: Pay the Setup Fee

The IRS charges a fee to set up long-term installment agreements. As of 2024, the fees are as follows:

  • $31 if you apply online and set up direct debit payments (automatic withdrawal)
  • $130 if you apply online without direct debit
  • $225 if you apply by mail or phone without direct debit
  • Fee waivers: Low-income taxpayers may qualify for a reduced fee or a fee waiver. Check IRS guidelines for eligibility.

Step 5: Make Your Payments

Once your installment agreement is approved, you must make your payments on time each month. You can choose from several payment methods:

  • Direct debit (highly recommended): Payments are automatically withdrawn from your bank account each month, which reduces the risk of missing a payment.
  • Check or money order: You can send payments by mail, but this method increases the risk of late or missed payments.
  • Online payments: Use the IRS Direct Pay system or your IRS online account to make payments electronically.

Step 6: Stay Compliant

While on an installment agreement, it’s crucial to stay compliant with all IRS requirements:

  • File all future tax returns on time.
  • Pay all future taxes owed on time.
  • Make your installment payments as agreed.

If you fail to meet these obligations, the IRS may cancel your agreement, and you could face additional penalties or enforcement actions, such as wage garnishment or bank levies.

Benefits of an Installment Agreement

  • Avoid Collection Actions: Once your installment agreement is approved, the IRS will generally stop collection actions, such as wage garnishment, tax levies, or liens.
  • Flexible Payments: You can choose a monthly payment amount that fits your budget (subject to IRS approval).
  • Prevent Further Penalties: Although interest and penalties will still accrue, setting up an installment agreement can prevent additional penalties for failure to pay.

Conclusion

Setting up an installment agreement with the IRS can provide much-needed relief if you’re unable to pay your tax debt in full. By following the steps outlined above, you can avoid aggressive collection actions and pay off your debt in manageable monthly payments. Always remember to stay compliant with IRS requirements during the installment period to avoid any interruptions to your payment plan.

If you are unsure about your options or need assistance, consider consulting a tax professional who can guide you through the process and ensure that your installment agreement is properly set up.