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Sweet marketing music

Tanner Montague came to town from Seattle having never owned his own music venue before. He’s a musician himself, so he has a pretty good sense of good music, but he also wandered into a crowded music scene filled with concert venues large and small.But the owner of Green Room thinks he found a void in the market. It’s lacking, he says, in places serving between 200 and 500 people, a sweet spot he thinks could be a draw for both some national acts not quite big enough yet for arena gigs and local acts looking for a launching pad.“I felt that size would do well in the city to offer more options,” he says. “My goal was to A, bring another option for national acts but then, B, have a great spot for local bands to start.”Right or wrong, something seems to be working, he says. He’s got a full calendar of concerts booked out several months. How did he, as a newcomer to the market in an industry filled with competition, get the attention of the local concertgoer?

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by Andrew Tellijohn
November 2004

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Accounting

business builder accounting  

Check off your
winning game plan
before year’s end

by Vicki Johnson  

Fall brings football, but entrepreneurs shouldn’t leave all the game plans to the coaches. The final quarter of the year is a key planning season for business owners, and this year there are many topics to consider.

As you huddle and select the plays that will benefit you, your family and your company, consider the following topics to help ensure you are positioned for victory:

1. Have you maximized your 401(k) deferrals for 2004?

• To make sure you are maximizing your 401(k) deferrals, watch the maximum deferral amounts each year, as they typically increase. In 2004, the maximum amount you can defer in a 401(k) plan is $13,000. If you are 50 or over by the end of 2004, there is a catch-up contribution available to you of $3,000, which means you could defer a maximum of $16,000 in 2004.

2. Have you elected to withhold the maximum in your 401(k) for 2005?

• When making your election on how much to withhold as deferral in 2005, keep in mind that the maximum amount for 2005 goes up to $14,000. The catch-up contribution for 50+ also increases by $1,000 to $4,000, bringing that maximum deferral amount to $18,000. If your 401(k) plan allows catch-up contributions and you are 50 or over (or will be by the end of 2005), this is an excellent opportunity to achieve substantial retirement savings.

3. Have your critical legal documents been updated?

• Protecting your family is important and your will should be updated to take into consideration any life changes that have occurred. Review your will and determine if updates should be made.

• Protecting your business is also important, particularly when you are not the sole owner. Buy-sell agreements will help to ensure that the company’s succession is not sidetracked by an unwanted change in ownership. They are also set up to decrease the federal estate tax hassles that can arise after the death of a co-owner. If you are a co-owner in your business, make sure you have a buy-sell agreement in place.

• Loans from shareholders to the company should be documented as a written note and recorded in corporate minutes to preserve their treatment with the IRS as a loan rather than as disguised equity. In doing so, the repayment of the loan is tax-free to the shareholder, as opposed to being considered a taxable dividend if treated as equity. Review your documentation related to loans from shareholders to make sure they are properly recorded.

4. Are you saving for college in a tax-preferred plan?

• Section 529 plans allow for the greatest amount of savings for college costs. The account grows tax free, as long as the funds are withdrawn to pay for qualified higher education expenses. The fund is also transferable, should the beneficiary decide not to attend college. There are no income limits dictating who can contribute to a 529 plan, nor is there an age limit on the beneficiary of the account contributions. Contributions to these accounts can be very large (over $200,000), but the larger contributions will be subject to gift tax issues.

• The Coverdell Education Savings Account (CESA) is another tax-preferred way to save for college. These funds also grow tax free, provided the distributions from the account are used to pay for qualified education expenses, which include both higher education and elementary and secondary education expenses (K-12). There are income limits where the ability to contribute to a CESA phases out ($190,000-$220,000 adjusted gross income for married filing jointly). For 2004, the maximum amount that can be contributed to a CESA is $2,000.

5. Have you properly planned to take advantage of the tax credits available for college tuition paid?

• The Hope Credit and the Lifetime Learning Credit provide some significant tax savings, as they can directly offset tax; they are a credit, not a deduction. The Hope Credit has a maximum credit of $1,500, while the Lifetime Learning Credit’s maximum is $2,000. There are income limits to watch for with these credits — they start to phase out at an adjusted gross income of $83,000 for joint filers in 2004. This means that many taxpayers will not be able to take advantage of these credits. However, if your college student has sufficient taxable income to justify claiming themselves, these education credits can be utilized on their individual return. For the business owner, this may mean it is now time to pay your college students for the work they did at your company this year.

6. Are your insurances adequate and have they been updated for life changes?

• It may be time to revisit your life insurance policy and consider increasing the coverage amount, particularly if you have upgraded homes, added to your family, started a business, or experienced other significant changes in your life.

• The same would apply to your other policies, including disability, medical and long-term care insurances.

• When reviewing your health insurance coverage, the new Health Savings Accounts (HSAs) should be considered. These accounts, in conjunction with a High Deductible Health Plan, offer the ability to make tax deductible contributions to the HSA. Distributions from the account are tax-free if used to pay qualified medical expenses and, unlike flex spending accounts, any unused amounts in the account roll forward.

7. Have you planned your company’s fixed asset purchases to maximize available depreciation deductions?

• With the expiration on December 31, 2004, of the 30 percent and 50 percent bonus depreciation incentives, now is the time to review your company’s needs and determine if future fixed asset purchases should be accelerated into the current year.

• The timing of purchases should also be taken into consideration when taking advantage of the Section 179 expensing election available on fixed asset purchases. The expanded expensing limits that went into place in 2003 (now at $102,000 for 2004) will end at the end of 2005. For 2006 and after, the limits are scheduled to drop back down to $25,000. This means that time is running out on the ability to achieve substantial tax savings on fixed asset purchases. Forecast your needs and time your purchases to get full use of the available deductions.

Use this checklist to help ensure that you are creating a winning game plan for you and your company. Contact your business teammates (such as your tax and business adviser, attorney, financial planner) and draft them into helping you develop and execute the plays you need to score and win.

[contact] Vicki Johnson is a senior manager in Wipfli’s St. Paul office and the leader of Wipfli’s Twin Cities Small Business Services Group. Wipfli is an accounting and business consulting firm: 651.636.6468; vjohnson@wipfli.com; www.wipfli.com