Broker Check

July 15, 2002

Change Money Purchase Plans to Profit Sharing

          Money purchase plans have lost their charm.  Under these plans, employers have to make contributions regardless of profits, up to 25% of compensation.  The rule is different for profit sharing plans; if there are no profits, no contributions need be made.  Until 2002, the ceiling for profit sharing plans had been 15% of compensation.  For 2002, the 25% pay cap applies to both types of plans, so many firms with money purchase plans are looking to get out of them.

          Converting to a profit sharing plan is easy according to the IRS.  The switch is not treated as a partial termination which requires a full and immediate vesting of all participants in the plan.  However, because contributions to the new plan are no longer mandatory, participants must get a notice describing the change.  Otherwise, plans owe a $100 a day penalty for each unnotified participant.  Kiplinger Tax Letter June 21, 2002.

Troubled by Suspended S Losses?

          Merging your S Corporation into a C Corporation that you own can pay dividends.  The IRS ruled privately that a shareholder in an S Corp with suspended losses because they exceeded his tax basis could merge his S Corp into his C Corp and then deduct the suspended losses to the extent of his basis in the stock of the surviving corporation.  Kiplinger Tax letter June 21, 2002

Have You Purchased American Express

          funds lately?  Maybe you are using American Express Financial Advisors.  If so, you were probably sold funds run by “American Express, long one of the poorest performing fund groups, instead of ones from outside fund companies.  That is because the American Express-run funds are the only ones that the firm’s advisors will be able to sell without being hit with charges that reduce their commissions.  Big brokerage and other financial firms selling a variety of mutual fund families prefer customers to buy their in house funds because the firms stand to make more money that way.”  Wall Street Journal June 7, 2002.

          Independent advisors are not subject to such financial armtwisting.

Buy Low, Sell High

          That is what you are supposed to do when you invest.  But most people buy when they feel good, not when they feel bad.  It’s better to invest when you feel queasy. So, Buy Now, Sell Later.  I believe the markets are at or near their lows now; they will be higher (sooner rather than) later, Harry Dent and others believe the Dow could be as high as 14,000 and the NASDAQ 3000 by the end of 2003.  I believe the public’s sentiment is as bearish today as it was bullish in the beginning of 2000.  Both were exaggerated.  Today, the market is in a disconnect with economic reality unless you believe the market is predicting an economic collapse.

New Jersey Tax Law Changes

          Governor McGreevy wasted no time once in office in violating his no tax increased pledge, by retroactively raising the tax burden of most New Jersey Corportions and Partnerships.  The changes include:

  • Substantial increase in the minimum Corporation Business Tax
  • The imposition of a new Corporation Alternative Minimum Tax
  • A two year suspension of the availability of net operating loss carryforwards into  years 2002 and 2003
  • Suspension of the S Corporation tax phaseout which began in 2001
  • Imposition of per partner and per member fees for partnerships, LLPs and LLCs
  • Disallowance of deductibility of intercompany interest and royalty payments
  • CBT depreciation decoupling for federal bonus depreciation per 2002 federal law change  July 3, 2002

New York Workers’ Compensation Law Update
(from July, 1992 AOHL Newsletter

          If a New York corporation has two or fewer executive officers who own 100% of the stock of their corporation they may now elect to exclude themselves from coverage under the Workman’s Compensation Law.  This could result in the saving of several hundred dollars per year.  If you would like us to pursue this election to not be covered by Workmer’s Compensation, please call us.

Wishing You Well

          As the world events of the past year have reminded us of the desire of people to eliminate liberty and democracy, John Adams, one of the signers of the Declaration of Independence urged us to celebrate the occasion with pomp, ceremony and fireworks.  Hope you had a safe and happy Fourth.

Remember 26 Years Ago

          when international Arab terrorists first tried to destroy the decencies of the world.  But the target of the attack struck across 2500 miles with airborne commandos in a battle against international terrorism.  First it was Israel at Entebbe.  Now it is the United States and Afganistan.  We should have learned then.  Maybe, we have learned now.

          If you have questions about these or any other tax and financial matters, please call us.  Remember, We’re Here For You!