And coming in 2011: SIMPLE cafeteria plans, for businesses with up to 100 workers. The only owners allowed to participate in these plans are C corporation shareholders. Still, "a SIMPLE cafeteria allows your key and highly compensated employees to maximize their benefits," says Jan LeTourneau, compliance manager with WageWorks, a San Mateo, Calif.-based benefits administrator. Moreover, the employer avoids payroll taxes on the wages that workers direct into the SIMPLE.
The primary advantage is the safe harbor from non-discrimination testing. These tests have historically prevented very small businesses from adopting cafeteria plans-say, a C corporation with four employees, two of whom are key or highly compensated-according to LeTourneau. To get the safe harbor, employers have to contribute for eligible employees, among other things. But there are different methods of calculating the employer's required contribution, and jumping from one method to another from year to year is permitted.
States Pursue Non-Residents, And Vice Versa
Now is a good time to discuss state-tax issues with clients who travel in their work, such as executives. Tedone says New York in particular has become aggressive in auditing non-residents. "If a client performs services on any day in a state, you need to determine whether he is required to file a return with that state," Tedone says.
Receipts for restaurants, hotels and tolls help document the client's whereabouts. "Also make sure clients record in their calendars where they are working, even if it's in their home office," says Tedone. He tells clients to print and file at home a copy of their Outlook calendar in case they change employers before the auditors call.
Some clients are taking the offensive and actively seeking out tax havens. One of Townsend's clients in the Tar Heel state is pondering whether to realize a large capital gain, so early in 2010 he decided to move to state-tax-free Florida, where he already had a home. "That way if we decide to trigger a capital gain late this year, not only will he get the 15% federal rate but he'll also avoid almost 8% in state tax," Townsend says.
Other clients may benefit from a chat about their state's rules regarding a change of domicile. Townsend says some folks think that all they need to shake loose of taxes in their old state is an Orlando P.O. box and a bright orange Gators sweatshirt announcing they're a Floridian.