Entrepreneurs have a lot to worry about with their business. It is constantly changing and an ongoing challenge. The last thing these business managers want to do is focus on studying their personal financial planning and tax strategies. Fortunately, they can work with leading accountants and financial planners to achieve those goals. They have a couple of considerations in particular that other professionals do not need to think about.
Your stock and options in a company are taxed at very different rates depending on when they are exercised or sold. For example, options that are exercised before a sale will get taxed in capital gains at the current valuation, however, the cash must be paid out of your pocket. This could be a big risk with a huge payoff. For example, if your options are worth $1,000,000 you can exercise them and pay $200,000 capital gains tax. However, if you wait until the options are sold to another company for $2,000,000 you will be taxed at the ordinary income rate of 39% or $780,000. That is a massive difference in the amount of taxes to be paid.
Key Person Insurance
Top managers and business owners are often so crucial to the business that it could not function without them. For that reason, they often purchase key person insurance. This pays out to the business in the case of death or disability. It can be crucial to keeping the business afloat by paying expenses like rent and payroll for a few months when you are recovering from a car crash for example. The premium expense is also tax-deductible. Financial planners can help to arrange this insurance and the necessary financial documentation.