Anatomy of a census

We’re all familiar with the U.S. Census to some degree: Every 10 years, the government conducts the census to determine population density and demographics, and the results have a profound effect on the dollars allocated for infrastructure and other needs. But that specific census is not the most important census for a business owner to understand. Rather, an employee census is the single most important report for a profitable company – yet it rarely is reviewed by anyone outside of human resources.

So ... what is an employee census, and why is it so important?

An employee census, on its face, is a simple report that lists each employee’s name; birthdate; address; salary; and hire, fire and rehire dates. A census can range from tens of thousands of employees for a large company to just one for an independent contractor or sole practitioner.

The size of the employee population and the salary levels and types of employees are factors that affect a business owner’s ability to tax-efficiently pull income from their company into a qualified retirement plan. With proper planning, these savings can drive an income stream that could either be tax-free or utilized at a lower tax rate than if taken as regular income.

At some point in a business’s life cycle, the need to reinvest for growth – or the ever-popular spending of money on vehicles and other assets that immediately lose value as a way to reduce tax – becomes less appealing. While retirement savings should be a goal at every stage of a business’s life cycle, it becomes easier as profitability grows and remains consistent.

Anyone who receives 1099 income reported through IRS Form 1040 Schedule E or Schedule C or who owns a business with any corporate structure can design a retirement plan for themselves. Smaller companies are ideal for tax savings through qualified planning; however, an analysis of a company’s census will shed light on tax savings opportunities that were assumed to be unavailable.

We are not talking about cookie-cutter plans with tax savings outweighed by the cost of contributions to the employee base. In reality, the ability to save and defer taxes on significant amounts of income – oftentimes exceeding six-figure amounts – is available. Savings programs that could guarantee income in excess of $200,000 annually are very likely if the right profits and age demographics are in place. Investment options include real estate; mortgage or lending notes; equity ownership in LLCs, C-corps, JVs or LPs; and much more. About the only things certain retirement plans cannot own are antiques, collectibles and nonpure precious metals.

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Brickhouse Consulting (brickhouse-consulting.com) is a fee-only consulting firm with expertise in advanced financial planning strategies for business owners and sole practitioners. We focus our financial expertise on educating clients about opportunities for tax-efficient retirement savings and income plans and how those plans integrate into their exit or succession plan. As part of our services, we mathematically model scenarios to demonstrate the effects of varying strategies and help clients select a strategy for implementation. For information or to schedule a free videoconference introduction, send an email to info@brickhouse-consulting.com.