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Business 101

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CPA James LaPorte explains all you need to know

James LaPorte has been the managing partner of Ericksen, Krentel & LaPorte LLP since 1995. He has seen the practice grow significantly, not just by the number of clients and employees but by the diversification of theservices that they offer their clients.

With our economy in a state of crisis and local businesses clutching to their purses due to the credit crisis, LaPorte explains how important it is for businesses, as well as individuals, to seek the knowledge of an accountant or CPA.

Why should a business owner know what their business is worth?
More than a tally of physical assets, a business valuation accounts for a combined value of tangible and intangible assets to determine the value of an ownership interest in a business or enterprise. The reason to have a closely held business valued can be divided into three categories: tax, transactional and litigation. When valuing a business for tax purposes, it is critical to ensure compliance with guidelines set by the IRS. Failure to properly value a business for tax purposes can result in disastrous tax effects. When performing a valuation for litigation purposes, statutes, case law and corporate documents determine the requirements and guidelines. Because the law varies in each state, special care should be taken to ensure that the appropriate requirements are fulfilled. When valuing a business for transactional matters, the valuation is preformed in a manner determined by parties to the transactions, with the exception of ESOPs [Employee
Stock Ownership Plans] for which the U.S. Department of Labor issues regulations.

What should a business owner know about small business succession plans?
One of the most important decisions an owner of a business can ever make is choosing a successor to lead the business into the next generation. Selecting a successor is not an easy task and requires sufficient planning to successfully implement the orderly transfer of authority and responsibility.
Selection of a successor in a family-owned business is complicated beyond normal considerations. There are ownership issues, family politics, estate tax considerations and so on. Some experts recommend that a succession plan start at least five years before the owner intends to retire. I disagree. If the right successor is chosen, he or she will be ready to implement his or her new vision for the business within a two-or three-year period, less time if the person is promoted from within. Succession planning is a time-consuming and challenging task but has proven to be an effective tool for the success of a business for generations to come.

As Louisiana residents, we have all heard that you don’t need a will in Louisiana because everything is community property. How true is this statement? To some extent this is true, but only if the law distributes your community assets exactly as you would have done voluntarily, and that is rare. For instance, if you have a spouse and one or more children who survive you and you die “intestate,” which means without a will, your child will be the “naked owner” of your half of the community property, while your surviving spouse will receive a usufruct, or use of the income from the assets or right to occupy real estate until his or her death. If you have no children, your half of the community property goes outright to your surviving spouse. But what if you have children from two or more marriages, or if you own a closely held business established before your marriage, or one of the children is running your business and the others are not involved in it, or you inherit property from a family member, or you execute a prenuptial agreement with your second spouse and have separate property, or you have no spouse or no children. These are all specific instances and examples of why it is so important for individuals to see an estate planner and discuss how you want your assets distributed.

Year’s end is near. Do you have any tax-planning tips?
Accelerate your deductions and postpone your revenue is the norm for cash-basis taxpayers. Pay your real estate tax bill, pay your year-end charitable donations, including any noncash donations (some limitations apply). Make sure to maximize your 401k contributions, if eligible. If you have a current positive capital gain income from the sale of stocks, bonds or real estate, consider selling assets containing a loss to offset the gains. Taxpayers always want to know how they can pay the state less money in income taxes. The Louisiana legislature has passed numerous statutes over the last couple of years to help reduce the state income-tax burden of its residents.

James LaPorte received his bachelor of business administration degree in accounting from Loyola University in New Orleans. Today he is involved with the boards of several nonprofit foundations and serves in the capacity of trustee for several clients’ family trusts. He is president of the Clifford F. Spanier Foundation, chairman of the Finance Committee of the Christian Brothers Foundation and treasurer of the Christian Brothers School Board. LaPorte also serves as the chairman of the Finance Committee of the Catholic Foundation Board and sits on the Advisory Council of the A.B. Freeman School of Business at Tulane University.