Writing up the minutes of board of directors’ meetings is not usually a high priority for most business owners. Yet well-documented corporate minutes can provide valuable supporting evidence if your tax positions are ever questioned.
Minutes are especially important where any kind of related-party transactions occur, such as payments, loans, or distributions between the company and its owners. For example, the IRS may challenge the amount of compensation paid to a business owner as unreasonable. Corporate minutes that document the factors considered by the board in approving the compensation can be a strong defense against such a challenge.
Another area that receives close scrutiny from the IRS is the amount of earnings that are retained in the business rather than distributed as taxable dividends. A penalty applies to retained earnings over a certain limit unless they can be justified by business needs. Corporate minutes can be a strong piece of supporting evidence if they clearly spell out the reasons that the company needs to retain funds — for example, to purchase assets or for working capital.
If your company has a tax-qualified retirement plan or a stock option plan, the minutes should show decisions by the board adopting or modifying the plan. They should also document annual decisions on the percentage of contribution to profit-sharing plans and any decisions on fringe benefits, such as medical reimbursement accounts.
Corporate minutes need not be lengthy, but they should provide a clear record of corporate actions and the business factors that were considered when those actions were taken. You should think of your minutes as a key element of your tax planning strategy.
If your corporate minutes need updating, contact your attorney and take care of this important bit of business housekeeping. With questions about tax planning throughout the year, please contact Simons Bitzer at (317)782-3070 and speak to one of our tax specialits.
The S.W.O.T. (Strengths, Weaknesses, Opportunities, Threats) Analysis is a systematic diagnosis of the external and internal factors that effect the profitability and market success of any business. By looking at both the negative and positive elements simultaneously, a SWOT Analysis provides a simple, rounded perspective on evaluating a particular business idea, an area of operation, or the business as a whole. It can also suggest strategies for responding to the situations you will uncover – how to build on established strengths, minimize weaknesses, seize opportunities and counteract threats.
To learn about using a SWOT Analysis for your own business, please join us for a complimentary workshop from 11:30 – 1:00 on Wednesday, May 25th at Simons Bitzer & Associates. Lunch will be provided. Please RSVP to Raegan Potter by May 23 at email@example.com or (317) 782-3070.