BUSINESS LESSONS FROM THE TITANIC

A month or so ago the blockbuster movie Titanic was re-released in 3D. With special glasses, audience-goers are now able to see the ship crash into the iceberg even more vividly than before. In true Hollywood style, the film depicts a massive iceberg looming over the "unsinkable" ship with the crew scrambling to avoid a head-on collision.

We usually think of threats in this way: something big and dangerous that can sneak up and overwhelm us when we aren't looking. But the real story of the Titanic paints a different picture. It is a story that, while less dramatic, offers relevant lessons for leaders navigating their organizations through icy waters.

This is from a posting on the Harvard Business Review by Mark Bonchek:

You've Been Warned
The Titanic received six warnings of ice on the day of the collision. They were all ignored by the wireless operator, who was preoccupied with transmitting passenger messages and by the crew, who were focused on breaking the speed record. So pay attention. The signs are already there if you listen. Some companies, like Borders, Kodak and Polaroid, ignore the signs. Others, like Domino's Pizza, catch themselves before it is too late.

Size Doesn't Matter
The iceberg that the Titanic struck was not very big. It didn't even come up as high as the bridge of the ship. And the hole in the boat was actually quite small — six cuts measuring a little over three square feet.

Our brains are wired to think of threats as coming from something bigger, but it's often the little things that become our downfall. Clay Christensen's work on disruptive innovation shows the power of David against Goliath, the mammal over the dinosaur, the startup over the incumbent.

It's What You Can't See
The iceberg that struck the Titanic was almost invisible. Continuous melting had given it a clear, mirror-like surface which reflected the water and dark night sky, like black ice on a wintry road. This type of iceberg is called a "blackberg." It is possible that the crew could have been looking right at the iceberg from a distance and not seen anything unusual.

Look Below the Surface
Only about ten percent of an iceberg's mass is above water, with the other ninety percent below (hence the phrase "tip of the iceberg.") With so much mass below the surface, it's almost impossible to push an iceberg out of the way. Even a ship the size of the Titanic couldn't push what looked like a small iceberg out of the way.

Keep Moving
When First Officer Murdoch saw the iceberg, he put the engines in reverse and started turning away from the iceberg. It's a natural reaction to hit the brakes when you see a threat. But this action may have sealed the Titanic's fate. Ships turn more quickly when they have forward motion. If the captain had maintained the ship's speed or even accelerated, he might have avoided hitting the iceberg altogether.

So as you think about your business, think what warning signs you might have overlooked. Consider where the icebergs might be that you can't see, or where the threats might look deceptively small on the surface. And when you do see a threat, beware of hitting the brakes; the best reaction might be to step on the gas.

PAYING FRINGE BENEFITS

Q: When do I have to pay fringe benefits?

A: Fringe benefits such as vacation pay, sick pay, paid holidays and pay raises are not required by law. Such benefits are provided solely at the discretion of the employer. Payment of such benefits is due when previously agreed to and the employee has met all requirements for earning the benefit. Upon termination of employment all earned vacation benefits are payable as wages with an employee’s final paycheck. Unless previously agreed to, no other fringe benefits are payable upon termination.

Note, this is Nebraska law. Other state laws may vary.

RETREATS: A POWERFUL BUSINESS TOOL

Two weeks ago my partners Candy Otte, Stacey Stark and I scheduled ourselves for our annual partner retreat.  According to the dictionary, a retreat is a place of privacy or safety. When you think of the work “retreat” you think of falling back but a retreat is a powerful way to move forward.

Retreats can be very helping to advance your business. They are an important part of bringing together key people in your company, at a well-planned destination, so that you can build camaraderie, enhance leadership, and give your team the extra push that they may be need.  After our partner retreat we then conduct a full staff retreat.  Sure this takes time and is expensive it is well worth it.  It is amazing how it can clarify your business goals, put everyone on the same page and help to refocus on working “on your business not just in your business.”  Every year, I come back with fresh perspectives and new insights, totally reinvigorated. An annual business retreat works great for me, and it might for you, as well.

Here are some tips on how to pull off the ideal business retreat:

·         Hold your business retreat at least one hour away from the office. The last thing you want is it to be interrupted with calls and clients that “just need second.”  If you are not there then you can stay focused. The idea of a retreat is to leave the office behind.

·         By being away from the office and staying overnight you won’t lose the focus by going home to hear the problem of the day form the spouse of kids. To get the most bang for your buck on a business retreat, you really need to make it an overnight event. This helps keep everyone from staring at their watch all day, assuming that when 5 p.m. hits, they get to jet. Overnight retreats let people relax and not rush the experience.

·         Aim to have all your meals together as a group. This will be a great time for bonding and personal insights to occur. And when people feel more connected and more trusting of each other, they will work together way better.

If you have never taken time to walk away and work on planning your business consider giving it a try.

WANT A TAX BREAK – HIRE YOU KIDS

By hiring the child to work for the business, it can be a win-win for the family.

Here are the potential perks.

·         Income tax savings. Say that you reduce your compensation by the amount of salary you pay your child. Instead of being taxed to you at rates reaching up to 45 percent this year, the income is taxable to your child. For 2012, your child can earn up to the standard deduction amount of $5,950 without paying any federal income tax. Any excess is taxed at a low 10 percent rate.

o   Example:

§  You pay your child $5,000 to work during the summer before she heads off to college. The entire $5,000 in wages is covered by the standard deduction. In contrast, if you are in a 33 percent bracket, $5,000 in wages would save you $1,650 in tax. In addition, your adjusted gross income (AGI) is also lowered, which means there is less chance that you'll be subject to unfavorable AGI-based phase-out rules.

·         Kiddie tax avoidance. Generally, the unearned income of a child under age 19, or a full-time student under age 24, is taxed at the parents' tax rate to the extent it exceeds an annual threshold ($1,900 in 2012). But this rule doesn't apply to "earned income" that your child is paid in wages.

·         Business tax deduction. You get a business deduction for money that, as a parent, you might have given your child anyway.  The wages you pay the child are deductible by the business just like the wages paid to any other employee of the company. However, when a family member is employed, you must take care to ensure that the wages are reasonable in amount for the services actually provided (see right-hand box).

·         Payroll tax savings. If a child under age 18 is employed by his or her parent in an unincorporated business, the earnings are exempt from FICA tax. This exemption also applies to FUTA tax up until the age of 21. These payroll tax breaks can provide significant tax savings for a parent who is self-employed or a partner in a partnership.

o   An unincorporated business includes a sole proprietorship; husband-and-wife partnership (owned only by you and your spouse); a husband-and-wife limited liability company (LLC); or a single-member LLC, which is treated as a sole proprietorship for federal tax purposes.

o   What if your business operates as another type of entity, such as a C or S corporation? Your child's wages are subject to Social Security, Medicare, and FUTA taxes, regardless of age. That's the bad news.

·         Children Age 18 and Older: After your children reach age 18, the tax advantages decrease, because their wages are then subject to Social Security and Medicare taxes (however no FUTA tax is due until age 21).

o   As the employer, your business must pay its share of the Social Security and Medicare taxes. The employee's share is withheld from your child's paychecks. However, again, the child's standard deduction still shelters up to $5,950 from the federal income tax. And you still collect a nice business write-off that cuts your income tax and self-employment tax bills.

·         Tax-free fringe benefits. As an official employee, the child is in line to receive tax-free company fringe benefits. This may include health insurance coverage, group-term life insurance coverage up to $50,000 and educational assistance plans. As with wages, payments under a qualified plan are tax-deductible by the business.

·         Individual Retirement Arrangements (IRAs). If your child has earnings from a job, he or she can contribute to a traditional or Roth IRA. The maximum contribution for 2012 is $5,000. Because the child's income is low, contributions to a traditional IRA are deductible on the child's return. Contributions to a Roth IRA aren't deductible, but any withdrawals made after age 59 1/2 are tax-free, as long as the account has been open five years. Retirement will seem like a long way off to the child, but this is a good way to save for the future.

Tax-smart idea: Have your child open a Roth IRA and fund it with summertime earnings. They can use these accounts to save money for college, a first home -- and, of course, retirement. By socking away some of their earnings in a Roth IRA, your youngsters can begin a savings plan that can grow into a small fortune.

Roth IRAs allow earnings to build up tax-free. And the tax law allows money to be taken out penalty-free in special circumstances, which include paying for college and buying a first home.

There's a lot to be gained by hiring your child to work for the business, but don't ignore the human element of the arrangement. Make sure it's a good fit for everyone involved.

HUGE PENALTY IF YOU DON’T REPORT FOREIGN ACCOUNTS TO THE IRS

Many taxpayers may have investments in overseas.  If this investment is in the form of mutual funds or other passive holdings, there is usually no extra reporting to the IRS or Department of Treasury.  However you can accidently have an account that might trip you up.  For example, if you have a timeshare that you sell, even though the money normally goes right out of the account to your US account you are subject to the stringent reporting requirements.  Why?  For a brief time, maybe only one day, you have money from the sale in a foreign account.

Also, if you own a foreign bank account, securities account, etc. and the value of these accounts exceed more than $10,000, than this needs to be reported, both to the IRS and to the Department of Treasury.  The reporting to the IRS is included with your tax return and the reporting to the Department of Treasury is on a separate form that is due by June 30 of each year with no extensions and it must be received by that date, not postmarked.

If you forget to report these holdings, in many cases, the penalty for not reporting these accounts can actually exceed the value of the account, so it is extremely important to review these accounts.  The penalties are high because Congress wants to stamp down on foreign accounts so they set the penalty high.

TERMINATING EMPLOYEES

Q: What rights do I have under law to terminate employment?

A: Nebraska is an “Employment at Will” state. This means that the employer and the employee have equal rights to terminate employment at any time. Neither party is obligated to give notice or cause for termination. If it is evident that an employee was terminated because of age, race, sex, etc., the employee should contact the Nebraska Equal Opportunity Commission at (402) 471-2024 or (800) 642-6112.

Note, this is Nebraska law. Other state laws may vary.

CLEVELAND WAITRESS GETS $434,712 TAX REFUND CHECK FROM IRS

Just because you receive a check from the IRS does not mean that the money is yours. The taxpayer rightly turned back the money to the IRS. Here is the information as reported in USA Today.

USA Today, Cleveland Waitress Receives Huge IRS Refund Check by Mistake:

A longtime Cleveland waitress got the surprise of her life this week when an enormous income tax refund check arrived in the mail.When Ginny Hopkins filed her tax return, she expected a refund of $754 — money she really needs to fix her car, among other things. Instead of that check, she found a check mistakenly issued for $434,712 in her mailbox. ...

Hopkins knew that cashing the check could get her in a whole lot of trouble. "They'll put me in Alactraz, waiting on the night shift at Alcatraz," she said. "They'll reopen the place." ...

Hopkins made arrangements Wednesday to return the check to the IRS office at the federal building in downtown Cleveland. Since Hopkins needs the money right away, her friends at the restaurant and WKYC-TV in Cleveland advanced her the money. The IRS said sometimes mistakes like this happen, but it happens less often as more people file their taxes electronically. Hopkins should get her correct refund check in six weeks, the IRS said.