Small Business Tax Time: Time to Rethink Your Classification?

small business tax classifications

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In the U.S., 95 percent of all businesses are considered “small” or “micro” entities. Often, this means they’re sole proprietorships or operations with only a handful of employees. It also means that tens of millions of Americans receive income from businesses that they own – and that, come tax time, they have to deal with the various rules and regulations for how business income is taxed.

This, of course, leads to countless hours of agonizing over whether a business should reorganize itself to take advantage of tax laws and loopholes. If you’ve been considering restructuring your company for tax reasons, here’s a guide to help you make the decision.

Small Business Structure: Tax Implications

The three most common business classifications for small businesses are…

  • Limited Liability Corporation: This structure has gained popularity in recent years. It lets business owners limit their exposure to liability (including debt liability); income from LLCs goes directly to business owners and is taxed at the personal income level.
  • S-Corporation: This structure is slightly different from the LLC. While it limits an owner’s liability, it allows owners to pay themselves a salary and collect any additional profits the business earns. These profits are taxed at the personal income tax rate. To qualify for S-Corp status, businesses must adhere to certain organizational guidelines that are much easier for smaller firms to meet.
  • C-Corporation: This is the standard structure for larger companies, though some smaller firms find benefits in this structure as well. One of the main attractions is that dividends are taxed at the corporate level, which is currently lower than the comparable personal income level.

Should You Consider Restructuring Your Small Business for Tax Purposes?

The short answer is that it depends.

Just as each business has different liability insurance needs, each business has different factors to consider when establishing a business structure. Analysts and advisors warn that, while switching from one structure to another may come with tax benefits in the short term, there could be costly long-term ramifications.

In addition, the specific taxation structures used for each class of business are far from straightforward. Revenue from a C-Corps, for example, might be taxed twice, negating any benefit from having it taxed at the business rate.

What’s more, if you have plans to sell your company or pass it on to an heir, one structure might make more sense for estate planning purposes.

The bottom line here is that you shouldn’t make any decisions about restructuring your business without talking to an accountant and a lawyer.

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Business Tips | Small Business Liability

Business Insurance Coverage Not Affected by Newly Named Storms

winter storms

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Property Insurance typically protects business owners from theft, damage, and loss of their business property (including a storefront or office, inventory, and equipment). But many business owners find that their Property Insurance policies include a clause that limits coverage for damage caused by named storms.

Called (appropriately) a “named-storm” clause, it typically outlines special coverage circumstances for storms that receive names from a major meteorological research or reporting body (such as the National Weather Service).

For example, a named-storm clause might require that…

  • In the event that a named storm (such as a hurricane or wind storm) damages the business property, business owners can collect insurance benefits only after reaching a higher deductible than the one outlined in their Property Insurance policy. Often, that increased deductible is determined based on the value of the insured property (e.g., one to five percent of the property’s value).
  • If a business owner does not want to pay the higher deductible in the event of a named storm, he or she might be able to pay a higher insurance premium.

The idea behind named-storm clauses is that such storms typically cause damage that is greater and more far-reaching than that caused by unnamed storms. By requiring insured parties to pay more out of pocket before allowing benefits to kick in, insurance companies can save themselves money at times when they’re likely to receive the most claims.

Winter Named Storms Shouldn’t Affect Business Property Insurance Benefits

When the Weather Channel announced last year that it would start naming winter storms, it cited several reasons for its decision: names would make communicating about the storms easier, raise awareness for affected citizens, and be feasible given the relative rarity of winter weather events.

While media outlets debated the merits of the Weather Channel’s decision, most of their discussions ignored the question of business liability insurance: specifically, few reports discussed whether or not newly named winter storms would be trigger named-storm exclusions in Property Insurance policies.

Luckily for business owners, most Property Insurance policies will not be affected by newly named winter storms. That’s partly because named-storm clauses often delineate the types of storms that can trigger special coverage provisions. Those most often named are hurricanes, hail storms, and wind storms.

If you’re concerned about what your Property Insurance covers, consult with your insurance agent. 

 

Tax Season Reminder: Business Insurance is Tax-Deductible

tax deductable insurance

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It’s officially tax season, which means two major things for small-business owners. First, it’s getting down to crunch time for completing and submitting tax returns. Second, now is an excellent time to implement strategies that will minimize your tax burden in 2013.

As you know, one way to reduce your company’s taxable income is by spending business funds on expenses that can be deducted, thus reducing your tax liability. Business liability insurance, because it counts as one of the costs of operating a business, is generally considered deductible.

Specifically, premiums for the following types of insurance are deductible…

  • Liability Insurance: General Liability Insurance premiums, which protects your business from lawsuits related to personal injuries or property damage sustained by third parties (i.e., someone other than yourself or your employees) on your business premises, are often deductible expenses.
  • Errors & Omissions Insurance: Also called Professional Liability or Malpractice Insurance, this coverage shields you from physical or financial damage that your clients suffer as a direct result of the work you’ve done.
  • Workers’ Compensation Insurance: This protection covers the costs associated with injuries and illnesses that your employees sustain while performing their jobs. It, too, can often be paid for with pre-tax income.
  • Health Insurance for your employees: Whether or not your company is required to provide health insurance under the Affordable Care Act, you’ll likely be able to deduct any related expenses from your income at tax time.
  • Unemployment Insurance contributions: State law determines whether these benefits can be deducted from your income. Typically, if contributions to an unemployment insurance system are considered taxes, they can are also considered deductible.
  • Commercial Auto Insurance: If you carry an insurance policy to protect vehicles used primarily for your business, you may be able to deduct the cost of that policy from your income.
  • Business Interruption Insurance: Often included as part of a General Liability or Business Owner’s Policy (BOP), this coverage allows business owners to continue collecting income in the event that their operations are interrupted by an event beyond their control.

Is Your Business Liability Insurance Tax-Deductible?

To ensure that you’re enjoying maximal benefits from the various investments you make in your business (including the insurance you purchase to protect it), consult with your accountant or tax preparer about whether you can deduct the cost of your premiums from your total income. 

Nonprofits, Accountants, & Manufacturers: New Business Protections

insurance for non-profits

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Business Insurance Now has exciting news for folks who own manufacturing, accounting, or nonprofit businesses: our newest insurance products offer entrepreneurs in these industries crucial coverage to keep their business assets safe. Here’s an overview of the newest ways we can help protect you.

Directors & Officers Insurance for Nonprofits

By their nature (and tax structure), nonprofits do not maintain much in the way of cash reserves. Unlike in other businesses, the greatest wealth concentration is often in the personal assets of an organization’s directors and officers. Because of this, people who bring lawsuits against nonprofit firms often target directors and officers rather than the nonprofit itself.

Directors and Officers (aka D&O) Insurance allows nonprofits to protect their assets in the event of such a lawsuit. Specifically, D&O Insurance provides coverage in the event that…

  • An employee claims he or she was improperly let go from the nonprofit organization.
  • Someone alleges that the directors and officers handled nonprofit assets improperly.
  • Someone asserts that directors or officers neglected their duties.

Business Insurance Now’s Directors & Officers (D&O) insurance coverage prevents leaders of nonprofits from having to dip into their personal wealth in the event that they face charges related to the work they do for their organization.

Errors & Omissions Insurance for Accountants

The primary service accountants provide is their advice. In the event that that advice leads to a financial loss for one of their clients (or in the event that one of their clients perceives that the advice led to such a loss), they could face a lawsuit seeking damages.

Such a lawsuit would not be covered by a standard General Liability policy; instead, accountants would need Errors & Omissions Insurance (also called Professional Liability). If you’re an accountant, you can now secure E&O Insurance when you visit Business Insurance Now in addition to the other kinds of coverage you need to protect the practice you’ve worked to build.

Commercial General Liability Coverage for Manufacturers

Because of the many risks they face in their day-to-day operations, small manufacturers often have difficulty securing Commercial General Liability Insurance – but this type of coverage is essential to protecting manufacturers from the many things that can cause them losses.

Business Insurance Now’s new CGL coverage protects manufacturers from a variety of perils, including…

  • Completed products claims. When a product leaves your premises, its life in the world is only beginning. If a completed product your firm made causes problems for a consumer, your CGL coverage would protect you from any associated lawsuits.
  • Contract liability. As you enter new contracts (including leases), you may assume new liabilities. Business Insurance Now’s CGL Insurance for manufacturers protects you in the event of a lawsuit related to any of those new sources of liability.
  • Claims of personal injury or property damage. If people or property suffer damage, injury, theft, or loss on your premises, your CGL will cover you for the costs associated with any resulting lawsuit.
  • Personal and advertising injury claims. In the event that your advertising or marketing materials prompted a lawsuit claiming that you caused personal injury to a third party, your CGL insurance would fund your legal defense against those claims.

Our new Commercial General Liability Insurance also offers certain other protections to manufacturers. Your insureon agent can provide you with details.

Manufacturers, Nonprofits, & Accountants: Secure Coverage Today!

If you’re a manufacturer, nonprofit owner, or accountant seeking business insurance, feel free to contact a Business Insurance Now agent for details about how our newest products can improve protection for your business.

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Business Insurance | What is Liability Insurance?

Does Business Liability Insurance Cover Criminal Claims?

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A recent case tried in Rhode Island forged new legal ground regarding how business liability insurance protects small-business owners in the event of criminal charges. Here’s a summary of the case and what it means for how your liability insurance protects you.

The Case: Criminal Charges & Insurance Coverage

The case in question involved a Rhode Island nightclub that burned down, killing 100 people. An examination found that the fire happened because the foam coating on the club’s ceiling was not flame retardant, as required by law. When an act at the nightclub lit fireworks, the coating caught fire, and disaster ensued.

Because of their failure to comply with fire safety laws, the owners of the nightclub were charged with manslaughter. They requested defense in the suit from their business liability insurance policy, which indicated that it offered legal defense for any “suit” the business faced.

But the insurance company argued that it did not have to provide legal defense because the charges against the nightclub owners were criminal, rather than civil, and the insurance policy defined “suit” as strictly civil suits.

Rhode Island Courts Consider Reach of Business Liability Insurance

The nightclub owners based their legal argument on an obscure Rhode Island statute that indicates that criminal convictions imply civil charges; however, the state’s Supreme Court ultimately agreed with the insurance company: business liability insurance policies do not have to provide financing for criminal lawsuits against policyholders.

So how might this ruling affect your business? It means that your business liability insurance…

  1. Offers legal protection only if you are facing civil charges. This is pretty standard for business insurance policies. Civil charges are of a lesser degree than criminal charges and come with lower penalties and fines.
  2. Probably offers no legal protection if you are facing criminal charges. Some crimes are classified by degree, and can be either civil or criminal, depending upon their severity.
  3. May be open to a certain amount of interpretation, depending on the laws in your state. As with the case mentioned in this article, your state might have laws that affect whether charges are classified as civil or criminal.

For those not trained in insurance or legal jargon, the issue of civil versus criminal coverage can be confusing. If you are unsure about what kind of coverage you have or need under your business liability insurance policy, ask your insurance agent for guidance and clarification. 

 

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Business Insurance | What is Liability Insurance?

What Small Businesses Can Learn from the Carnival Cruise Disaster

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When the Carnival Cruise ship Triumph broke down at sea earlier this month, more than 4,000 passengers were stranded aboard. During the five-day incident, supplies dwindled, leaving passengers with insufficient access to fresh water, food, and latrine facilities. Luckily, the ship eventually docked safely in Mobile, Alabama. And now that the ordeal is over, small-business owners can learn a lot from it about managing risk.

Business Liability Insurance as Disaster Preparedness

The New York Times reports that some passengers have already filed lawsuits against Carnival, and many analysts expect more suits in the future. That means potentially astronomical expenses for Carnival. To help your business manage a similarly disastrous incident, consider…

  • Adequate business liability insurance. Incidents like the Triumph’s disaster are classic examples of how business liability insurance can protect a business. Lawsuits alleging that passengers suffered injuries (physical or mental) from the conditions onboard will likely be financed by Carnival’s liability coverage.
  • Contracts with clearly set lawsuit limits. It seems that part of Carnival’s standard ticket language is a limit on how much passengers can seek in lawsuits. Ask your attorney how you can minimize the risks your business faces by including certain language in your client contracts.
  • Regular coverage reviews with your insurance agent. The Triumph disaster started with a fire in the engine room. If you haven’t recently taken stock of the various factors that could cost your business money, time, and customers (outdated equipment, potential delays in your supplier chain, chain reactions that could result from a snafus in various parts of your business), now is a good time to review your business liability insurance and what it covers. Your insurance agent can help you conduct a review of your business operations and, if necessary, update your policies to accommodate any changes.

Liability Insurance for the Second Disaster: Damage Control

Perhaps the most important lesson for small businesses, though, is what happens after a disaster like the Triumph’s. In the weeks and months following a problematic incident, small-business owners must work overtime to control the intangible damages as well as those that show up on an insurance claim. These include…

  • Customer relationship management. After any incident, reaching out to customers who were negatively affected is a key part of keeping your business strong. Most reasonable people understand that accidents happen, and are willing to forgive and forget – as long as their pain or suffering is acknowledged.
  • Reputation rebuilding. A public relations campaign may be in order to restore your business’s reputation in the public eye. It’s often wise to acknowledge your mistake and inform the public about your efforts to correct the problems.
  • Equipment updates or repairs (if relevant). If, as with the Triumph, faulty equipment or gear was to blame for your incident, replacing or repairing that equipment is essential. And you probably want to publicize those efforts. 

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News/Announcements | What is Liability Insurance?

Small Business Heroes: Fueling America’s Economic Engine

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Good news for small- and micro-business owners: BusinessInsuranceNow’s sister company, insureon, has launched a new program to support small-business owners around the U.S. Called Small Business Heroes, the initiative aims to give back to the people insureon serves every day.

As part of its first year, Small Business Heroes is running an exciting and unusual giveaway – and only owners of small businesses are eligible to win. Here’s how it works:

  1. Small-business owners identify something they wish they had. If you’re like most small-business owners, it’s probably not a stretch for you to think of something (e.g., a new computer or state-of-the-art piece of equipment) that would help your business grow or operate more smoothly.
  2. Small-business owners submit their wish to Small Business Heroes. On the Small Business Heroes website, visitors can describe what they’d like to have and how it would allow them to better serve their clients.
  3. Small Business Heroes chooses wishes to grant. Every month, Small Business Heroes will choose wishes to grant. Its decisions will be based largely on community support, as demonstrated on the initiative’s website and Facebook page. So if you want to have your wish granted, you can make a compelling case and encourage your family, friends, and clients to talk you up online.

Each small-business is only eligible to enter one wish, but you also have the option of submitting wishes on behalf of other people’s businesses.

Why Grant Small-Business Wishes?

According to insureon, Small Business Heroes grew from a desire to support the businesses who fuel the American economy. During its conversations with owners of small firms, the insureon team is constantly impressed by how hard-working, dedicated, and driven these folks are – and by how difficult it sometimes is for them to get ahead.

By granting wishes one at a time, Small Business Heroes aims to demonstrate how grateful it is for the work small-business owners do every single day to support themselves, their families, and the larger American economy.

For full details about the giveaway program or to enter your wish, visit SmallBusinessHeroes.com.

 

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News/Announcements | Small Business Heros

What Is Liability Insurance?

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As a small-business owner, you have to juggle dozens of concerns on a daily basis – in fact, many news programs seem to be devoted to the task of alerting you to issues you didn’t even know you had to worry about. But one concern that will stand the test of time is the financial wellbeing of your business.

Among the most important business protection tools available to small-business owners looking to ensure that their hard work is not wasted is business liability insurance. But what is liability insurance? Read on for a straightforward, no-nonsense explanation of what liability insurance provides you and how to secure it for your firm.

What Is the Benefit of Liability Insurance for Small Businesses?

“Liability” means, simply, responsibility to pay. If your business is found liable for damages, that means you owe money to replace or repair something that was harmed, lost, or stolen.

Liability insurance is a product you can purchase to protect yourself in the event that you’re found to owe money for something you did or neglected to do. In practice, liability insurance can take a number of forms…

  • General Liability Insurance: This type of coverage protects your business from incidents of property damage or personal injury to your clients or other third parties.
  • Property Insurance: This type of insurance covers your liability for property damage, including damage that happens to your business premises or your equipment and gear.
  • Errors and Omissions Insurance: This coverage pays out in the event that your professional advice or performance causes a financial loss to one of your clients.

What Is the Risk of Forgoing Liability Insurance?

When you purchase liability insurance for your business, you invest a small amount of money in the present in exchange for a promise from your insurance company that it will pay for any potential big expenses in the future. In other words, you agree to a certain small loss of money (in the form of your premium) to avoid a potential (but not guaranteed) large loss of money (in the form of a liability judgment or settlement).

What is the risk of doing without liability insurance? You could be required to drain your bank account or deplete your business assets to cover liability attributed to your business. With liability insurance in place, however, your insurance company pays out if and when you are found liable for major expenses.

Pope’s Resignation Highlights Risks of an Aging Workforce

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When Pope Benedict XVI announced he would step down from his post this week, people around the world were shocked – the last time a pope resigned was 598 years ago. In addition to shaking up the structure of the Catholic Church, Pope Benedict’s resignation serves as an important reminder of the risks that having an workforce with retirement on its mind bring to your business.

Of course, there are many ways older employees benefit small businesses: they bring unbeatable experience, expertise, and dedication to the work they do. But if you or members of your staff are nearing retirement age or planning on retiring soon, you should make sure your business insurance is the right fit.

Insurance Risks of Aging Employees

If you or members of your team are starting to think about retirement, be sure to take into consideration the following potential risks…

  • Disengagement. Without the proper support systems in place, older employees may withdraw from their work, becoming less engaged with clients, coworkers, and projects. Disengagement is often the result of multiple parties consciously or unconsciously treating aging workers as if they are on the way out the door. As a business owner, you can insure yourself against disengagement (which can lead to lower productivity, negativity in the workplace, and poor customer service) by discussing your older employees’ current values and benefit preferences. Making sure you have talked about how your employees want to transition to retirement will go far toward maintaining optimal engagement.
  • Higher health insurance costs. Studies show that older workers have the lowest rates of depression but the highest rates of cancer. Even Pope Benedict has some health concerns: the day after announcing his resignation, the Vatican revealed that he has a pacemaker. If you provide health insurance for your employees, your costs may increase as your staff members age; however, you may be able to manage costs by implementing wellness programs that reward healthy behaviors.
  • Prolonged disability or unexpected illness. Research shows that older workers take short-term disability leave less often than younger workers, but they tend to stay out of work longer for each incident. Still, if a key member of your team is incapacitated unexpectedly, your business could be left reeling. In some industries, you may be able to purchase key persons insurance to protect yourself against unexpected illness, disability, and death among the key players in your business.

Older workers are an invaluable part of our workforce, and probably an invaluable part of your business. To help them achieve at their highest possible level so they can thrive and help your business flourish, be sure your business carries insurance appropriate to the age of your employees.

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Business Insurance | General Liability Insurance

Never Assume that Subcontractors Are Covered Under Your Business Insurance Policies

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If you use subcontractors to help complete jobs – and nearly all of us small business owners do; make sure that your contractors have their own insurance policies to utilize. In the unfortunate incident that your company is sued because of work that a subcontractor did, many small business owners will be shocked that their own liability policies are not enough to cover the suit. Technically, the subcontractor does not work for your company, is not paid as an employee, and therefore receives none of the coverage that your small business insurance policy provides.

If a lawsuit is brought against you, it is already too late. Don’t put your business under unnecessary risk; make sure that your subcontractors have adequate insurance to cover a claim for their work. Also, it is a good idea to have ironclad subcontractor agreements drafted up so that you can ensure that each party is responsible for the work they provide.

You should also ensure that your subcontractors have the proper insurance coverage out of respect for them. Nobody likes to be blindsided by lawsuits, and ensuring that your subcontractors are covered will only help to grow the professional relationship that you two have.

For more information about protecting your small business through work that was provided by subcontractors, please visit the TechInsurance Small Business Center

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What is Liability Insurance? | Workers Comp | Workers Compensation

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