All posts by Bistra Zwerman

Ins and Outs of the New 529-ABLE Savings Accounts

Tax and Financial News for September 2016

Ins and Outs of the New 529-ABLE Savings Accounts  

New 529-ABLE programs are currently available offering tax-free saving options for families with special needs individuals. With what promises to be the first of many, current offerings include Ohio’s STABLE, Tennessee’s ABLE TN, Nebraska’s Enable and Florida’s The ABLE United account. Some such as Florida’s version are only available to residents of the state, while others are open to nonresidents as well.


Prior to ABLE accounts, special needs trusts were the only way for families to save for a disabled child without losing access to crucial benefits such as Social Security insurance and Medicaid benefits. The downside to special needs trusts is that they involve lawyer’s fees, tax-sensitive investment management and a variety of maintenance and compliance costs. Often, the complexity and costs associated with setting up a special needs trust put them out of the reach of many families. ABLE accounts now offer a simple way to save for families that cannot manage a special needs trust, or can serve as a supplement to those who have them. Now let’s look at how 529-ABLE accounts technically work.

Rules, Rules, Rules

Generally, 529-ABLE accounts work similarly to 529 college savings accounts. 529-ABLE accounts all share the following features:

  • Tax Savings: Withdrawals and earnings for qualified expenses are tax free. Qualifying expenses for 529-ABLEs include things such as medical and educational needs, job training and housing.
  • Medicaid Benefit Protection: 100 percent of the assets inside an ABLE account are disregarded for purposes of Medicaid benefits qualification calculations.
  • Social Security Benefits Shielding: Accounts with balances greater than $100,000 can reduce SSI benefits or even cause them to be suspended, but anything less than that is of no concern.

The benefits shield effect of 529-ABLE plans are truly a game changer for families that could not afford a special needs trust. Prior to ABLE accounts, disabled persons could only have $2,000 in savings before being cut off from Medicaid, effectively resigning them to live their lives in poverty.

Beware – Not all Rules are Created Equally

Here is where things can get tricky. Congress sets the basic rules of ABLE accounts, but the details vary by plan. For example, the following apply to all ABLE accounts, regardless of type:

  • Only available for individuals disabled before they turned 26 years old
  • An individual can open only one account
  • The maximum annual contribution is linked directly to the federal gift tax exclusion ($14,000 per year currently)

So what is different? A lot of things, including investment choices, fees and in-state resident benefits.

State by State

Every state does things a little differently. The complexity and nuances of the different rules and attributes will only expand as more states begin to offer their versions of ABLE plans. Here are some highlights of differences between the current offerings:

  • State Tax Deductions: Nebraska offers residents a state income tax deduction of up to $10,000 for contributions, while Ohio, Tennessee and Florida offer no deduction.
  • Fees: Every state’s investment options have different fee structures and some, such as Ohio’s STABLE program, charges a $2.50/month administrative fee ($5/month for out-of-state residents) in addition to the asset-based fees.
  • Lifetime Maximums: Lifetime maximums for accounts range from a low of $350,000 in Tennessee up to $426,000 in Ohio.

In the End

ABLE accounts promise to help an entire new class of disabled persons live with more independence and freedom. Keep in mind that ABLE accounts are not designed to be a substitute for a special needs trust – but they are a good option to help improve the life of someone with a disability and save taxes at the same time.




General Business News for September 2016

Reviewing the Pros and Cons of Virtual Offices  

As the name implies, a virtual office exists primarily, if not exclusively, through the use of the Internet, a web of computers and software that workers use to do their jobs.

As Fortune magazine reports, two-thirds of major U.S. companies allow workers to telecommute infrequently and only one in three major American businesses permit workers to telecommute on a regular basis. With virtual offices used by employees and independent contractors alike, what are the advantages and disadvantages of a virtual office?


With virtual offices having no physical constraints, they provide business organizations many financial and human resource benefits.

Since virtual offices, for the most part, are run over the Internet, there is little need for commercial real estate expenses. At most, there might be a need to rent temporary meeting space for a client for a few hours or days. Temporary office space with on-demand scanning, printing and administrative help might be available to augment an otherwise virtual office space. Depending on the savings of dynamic office space rental, real estate savings could provide businesses with more competitive quotes for clients.  

Virtual offices provide two related advantages, especially when it comes to recruiting and staff retention benefits. When a worker, contract or employee, cannot arrange transportation or it is not possible to travel on a daily basis due to geographical or personal reasons, virtual offices provide businesses with greater access to more candidates.

Similarly, virtual offices can provide businesses an option to find qualified candidates, if nearby talent lacks desired skills or experience. If a business is located in a sparsely populated area, a virtual office’s Internet-capable reach may make up for a skills-gap.  


While virtual offices are advantageous for reasons already discussed, they do present some challenges. One disadvantage of a virtual office is that communication amongst workers is challenging due to its inherent design.

Unlike traditional or open space offices where colleagues can face or turn to each other to clarify assignments, task coordination is more difficult in virtual offices. This is due to the lack of face-to-face communication that using technology almost exclusively creates. This may make task coordination less efficient through overlapping emails, redundant phone calls and different file versions that could present work-flow confusion.

Virtual communication, such as chat or email, can lack the verbal cues face-to-face communication naturally possesses. This can lead to misinterpretation of cultural norms or an employee taking offense to an otherwise well-intended comment or emoticon.

Worker culture also is impacted in virtual offices by the difference in the inherent work environment. Challenges include some workers lacking a high level of discipline and motivation to stay organized and maintain deadline accountability. If reference checks are not taken to evaluate a potential candidate’s work ethic, especially in the contract economy, worker results may vary. Internal and external team-building exercises may be accomplished, but can similarly lack the verbal cues in-person team building exercises do.

While virtual workplaces have the potential to attract and find the right talent, it’s prudent to properly vet candidates for work performance and ethics before hiring.




Tip of the Month for September 2016

Tip: Marketing Audit Is a Key Element to Business Success

The word audit has a bad reputation. The mere mention of an audit often makes employers and business owners quake. There are lots of types of audits performed in the workplace, and of all these, a marketing audit might be one of the most helpful tools a business owner has. Without regular, honest inventory-taking, you can’t measure the effectiveness of your marketing efforts and can’t see where you are getting the biggest bang for your buck.

Marketing audits don’t have to be complicated to be effective, but thoroughness is a prerequisite. Here’s how to start:

Internal Review

  1. Collect year-to-date current sales and marketing reports. Make sure they include goals/objectives, budgets and timetables and see how your most recent results line up against these parameters. Where are you meeting sales targets, missing sales targets or exceeding earlier forecasts?
  2. Look at developments in your industry/business. Have there been major developments in technology – or in the economy – that have affected your marketing efforts and your sales? Are you using up-to-date (and affordable) marketing and sales tools? Does your sales/marketing team have the technology needed to work effectively together and to reach and influence potential customers? If not, what is preventing you from doing so? Cost of new technology? Employee skill sets?
  3. Ask your employees how optimistic they feel about sales for the next few quarters. Get specific feedback regarding their assessments of:
    • Your company’s strengths
    • Weaknesses
    • Untapped opportunities
    • Challenges/Threats
  4. How does your use and adaptation of new communications and marketing technology stack up against your peers? Are you keeping up with new developments in your industry sector or are you lagging behind your competitors?

Outside Opinions

  1. Talk to your oldest and newest clients. Get their assessment of your marketing efforts. Find out how satisfied they are with recent goods or services provided by your firm. Based on what they heard/read/were told before making a purchase, were their expectations met? If not, what was responsible for the gap between expectations and reality?
  2. Ask vendors, suppliers and business partners for their opinions of your company and the efficacy of marketing efforts. Determine how you stack up against your competitors.

Audit Report

Look at what you’ve discovered about:

  • The reputation/image of your company (brand)
  • Effectiveness of your marketing messages
  • The perceived quality of the products/services you offer
  • Results of sales/marketing efforts (against objectives and goals set earlier)
  • Which tools yield the best sales leads and which yield the best conversion rates
  • Efficiency, effectiveness and cost efficiency of your major marketing tools:
    • Website
    • Webstie SEO
    • Online marketing campaigns
    • Database management
    • Social media
    • Advertising (traditional and Internet)
    • Publicity/PR
    • Promotional events
    • Others

Armed with the information on how your business is doing right now, you can see where you’re meeting your objectives, which marketing tools are contributing cost-effectively to these objectives and which need changing or omitting.

New IRS Business Audit Campaigns

Tax and Financial News for August 2016
New IRS Business Audit Campaigns

Traditionally, the IRS subjects large corporate taxpayers to nearly continuous audits of their tax returns. In recent years however, IRS funding has been substantially reduced, making this strategy unsustainable. As a response, the agency is creating new approaches to how it audits businesses – and companies need to prepare.

As part of its new approach to auditing certain business segments, the IRS is focusing on specific high potential issues, moving its emphasis away from specific taxpayers. Up until now and moving forward, the IRS is focused on three main issues: inbound distributions, basket options and captive insurance. These are just the start, though, as the IRS is expected to implement additional campaigns that will bring less esoteric issues into the fold.

Most experts believe the IRS will approach these campaigns with its full force. Companies subject to these types of audits so far have had to endure constant documentation requests. As a result, these new audit approaches require a well-constructed defense against the IRS.

Here are five tactics that can be used to deal with the new IRS audit campaigns.

  1. Get ahead of a possible audit. Create internal procedures for documenting and preserving transactions, documents and data. Pay attention to details so you can maintain and preserve attorney-client and tax-practitioner privileges to protect and limit IRS access to data.
  2. Quick and nimble wins the day. By focusing on certain high-impact transactions, IRS audits are moving far faster than in the past. Preparation is key; however, because you need to be able to respond swiftly.
  3. Be clear with the facts. As audits come to a close, the IRS often gives taxpayers a write-up of the facts as examined. Taxpayers are then asked to either verify that they agree with those facts or dispute them. It is best to ensure you have a clear and coherent story so you can dispute their examination results if you do not agree with them.
  4. Get ready to state the record. The IRS is substantially increasing informal interviews of taxpayers and employees and recording them. Treat these interviews like they are depositions as anything you say or do can come back to bite you.
  5. Prepare for a show of strength. During the past several years, the IRS has been more aggressive and assertive in challenging attorney/accountant privilege claims. They are regularly issuing summonses to obtain documents in response to privilege claims. These summonses frequently result in standoffs that end up in court – which means even if you win, it can still be a costly process in terms of both time and money.

In the end, remember that the IRS is restructuring in response to shrinking resources and getting more aggressive as a result. The best way to protect yourself and your business is through preparation and strategic planning. Use the five steps above to be proactive and protect yourself against potentially intrusive IRS audits that ultimately can be extremely costly.



General Business News for August 2016
Is Factoring Right for Your Business?

Without cash flow, it’s only a matter of time before a business will close its doors. Right behind building a clientele base, invoicing is an important step in creating and maintaining positive cash flow over the long term. For businesses looking for a faster way to collect on invoices, factoring might provide another avenue to quickly generate cash flow.

Factoring Defined

Factoring works by letting companies receive an advance on their billing invoices, between 70 percent and 90 percent of the original amount, within 24 or 48 hours of application. The company advancing payment for the invoices, called the factor, often makes this loan conditional upon a credit check of the invoiced client. The greater the invoiced client””””””””””””””””s credit rating, the more likely that the factor will be approved. The final step is when the invoice is paid by the client: the factor pays the balance of the invoice, minus their factoring fee.

Types of Factoring

It””””””””s important to note there are two types of factoring – recourse and non-recourse. Recourse factoring is more widely used and often cheaper. Recourse factoring makes the business owner responsible to refund any unpaid invoices to the factoring company if invoices remain unpaid after an agreed upon time. Non-recourse factoring often does not require the entrepreneur to refund any outstanding invoices a factor is not able to collect on. However, the decreased liability businesses have with non-recourse factoring are accompanied by more thorough and higher criteria for credit checks.


Since one of the factors banks look at is a business”””””””” creditworthiness, factoring may provide startups with another avenue for quick cash flow if traditional lending is not an option. For early stage companies that want to consider another type of financing, factoring may be an attractive option if they don’t have adequate personal credit, enough business collateral or long enough operating history to meet a lender’s criteria.


While factoring has its advantages, there are some considerations to think about before going ahead with the process. If there are a large number of invoices, service fees can accrue quickly when they go through the risk-worthiness review phase. In addition to the processing and review fees, there are application, credit check and overdue fees (for overdue invoices) that can account for the factoring’s cost.

One test to determine if factoring is right for you is to look at past labor costs. This can be accomplished by analyzing how many hours were used for in-house collection efforts taken to recover outstanding invoices. Metrics for collection efficiency can be compared against common late timeframes of 30, 60 and 90 days. A simple test like this can be implemented as a cost benefit analysis between internal collection efforts versus selling invoices to a factor.       

The choice and necessity to use factoring for a company’s invoice is one that isn’t always considered, but for the right type and stage of a business, this service can provide a jumpstart for frozen cash flow. With proper due diligence in choosing the right company, factoring can be a temporary solution to keep a business moving in the right direction over the long term.


Tip of the Month for August 2016
Tip: Revised U.S./European Transfer Pact

After months of debate, European and U.S. negotiators agreed on a data transfer pact to stop European regulators from imposing restrictions on the transatlantic transfer of data. The European courts had struck down the previous Safe Harbor framework following information leaks in 2013 that exposed intrusive U.S. surveillance practices. Since that time, the European Union and the United States have been struggling to replace the previous framework, which was outlawed following disclosures made by Edward Snowden, the former National Security Agency agent, concerning worldwide privacy breaches made by American intelligence services. The new Privacy Shield, a commercial data transfer agreement, is expected to facilitate more than $250 billion in transatlantic trade in digital services.

Why is the new accord important?

The new agreement will involve many companies – both large and small – that share credit card, financial transactions, human resources and/or travel information through cross-border data transfers. Free flow of data between Europe and the United States is crucial to international trade and finance. Digital data transfers are integral to the operations of the 4,000 or so businesses registered with the Department of Commerce – businesses that rely on being able to move information quickly between regions. Major U.S. companies are affected, including credit card companies like MasterCard, major internet companies like Google and Amazon, and social media giants like Facebook. They all had been left in legal limbo after the collapse of the Safe Harbor agreement. Key among the points of agreement are measures to safeguard the privacy of Europeans – not their counterparts in the United States. The Privacy Shield accord places stronger obligations on U.S. companies to protect Europeans’ personal data, and the U.S. government has agreed to safeguards and limitations affecting U.S. surveillance activities.

What are the main points?

The guarantees in the pact protect the privacy of people living in Europe – these assurances do not apply to people living in the United States whose data is transferred across the Atlantic. Privacy laws are tougher in Europe, where privacy is regarded as a fundamental right and expectations of privacy protection exceed those in the United States.

The accord gives Europeans the right to go to U.S. courts to seek redress if they believe their privacy has been breached by companies or by the U.S. government. It also reassures Europeans that U.S. government agencies will not gather and monitor Europeans’ data without cause. A new ombudsman position has been created in the State Department to handle any European complaints involving unauthorized collection of digital data from European citizens by U.S. government departments, including intelligence agencies.

Although the new pact goes further than the original Safe Harbor agreement, mistrust still remains and legal challenges could be on the horizon. Austria and Slovenia are concerned that the new Privacy Shield still fails to provide adequate privacy for their citizens. They abstained from voting to accept the new agreement, along with Bulgaria and Croatia. European privacy campaigners are also lobbying for more safeguards. On the other hand, its supporters – especially those in the United States – believe that the Privacy Shield agreement outlines clear and strong privacy obligations and that its enforcement clauses and rules will provide sufficient protection.

401(k) Plans As Your Personal Piggy Bank

Tax and Financial News for July 2016

401(k) Plans As Your Personal Piggy Bank

Short-sighted. Impulsive. Terrible idea. Robbing your own retirement. These are just some of the things you will hear in the financial media when it comes to borrowing money from your 401(k) plan. How much of this is reality and how much is myth? We are going to explore how 401(k) loans really work and when they could be a good idea – or the worst plan ever.

How 401(k) Loans Work

Unlike traditional loans, borrowing from your 401(k) is not a true loan in the sense that there is no lender involved and your credit score is not a consideration. More accurately, they represent the ability to access part of your own retirement plan money, which must then be repaid to restore your 401(k) plan to approximately its original state.

You pay the interest on the balance of a 401(k) loan is back into the account. As a result, the impact on your retirement savings can be minimal – and in many cases it will be less than the cost of paying interest on a bank or consumer loan.


  • Quick & Easy: Typically, requesting a loan inside most plans is simple. Most plans do not require long applications or credit checks, which means there is no credit inquiry impacting your credit score. A growing number also allow participants to make their request online.
  • Flexible Repayment Options: The majority of plans allow accelerated repayment or prepayment with no penalty. Often you can set up the repayment to happen directly through your company’s payroll withholding.
  • Low Fees: While there can be loan origination costs or maintenance fees, these fees are relatively nominal compared to most conventional lending sources, which can come with big application fees or origination fees.
  • Help (or at Least Don’t Hinder) Your Retirement: Payments are usually allocated back to the investments you borrowed from or chose to apply them to. This means the interest you are paying yourself will be added to your investments. There is no definitive loss of investment earnings either. If the investments would have increased in value, then yes, you miss out on those investment gains; but the flip side is also true. If the market goes down, then you miss out on any losses as well. Most of the strongest critics of 401(k) loans tend to assume that the market only goes up when they make their arguments, and we all know this isn’t true.
  • Pay Yourself Not the Bank: Yes, you are paying interest on the loan; however, you are paying yourself the interest. Interest paid on consumer debt such as credit cards comes at much higher interest rates and goes in someone else’s pocket.


401(k) loans are not all peaches and cream. There are some serious disadvantages, including:

  • If you are terminated or quit, you have to pay back the full loan in a lump sum or it is a deemed distribution. This means you’ll have to pay taxes and likely a 10 percent penalty on the remaining loan balance. This can be negated by qualifying for a hardship withdrawal or paying the loan back within the grace period, typically 60 to 90 days.
  • If you are borrowing the money because you are in financial trouble, you need to make sure you budget for a lower future paycheck as it is paid back.
  • If the investments you borrowed against do produce stellar returns, you will have forever missed out on those gains and the potential compounding.


401(k) loans are not always a bad idea. Under the right circumstances, they can provide a simple, convenient and lowest-cost borrowing option. Yes, they have potential disadvantages, but so do all loans if they are taken irresponsibly or at inopportune times.



Financial Planning for July 2016

How Morningstar Rates Mutual Funds

Mutual funds started to become popular back in the 1980s. However, there was one problem. Lack of information. While stock investors could get information on individual companies, mutual funds were comprised of up to hundreds of companies in different allocations, so individual holding research was futile.

Then along came Morningstar founder Joe Mansueto, who formed the company in order to provide readily available information about mutual fund performance, along with analysis and commentary. Established in 1984, Morningstar is now well-reputed as an independent investment research firm that offers assessments for all types of investments, including stocks, mutual funds and exchange traded funds.

Morningstar’s publication, The Mutual Fund Sourcebook, is a quarterly guide that provides performance data, portfolio holdings and other information on the majority of mutual funds currently available. The company also boasts Morningstar data and proprietary analytical tools, including the Morningstar Rating system for investments and the Morningstar Style Box that depicts each fund’s overarching investment style.

Morningstar is probably best known for its mutual fund ratings, ranging from one to five stars. These ratings gauge the performance of each mutual fund within the context of its risk profile as compared to similar funds. Ratings also adjust for the individual sales charges for each fund. The ratings system covers more than 100 different fund categories by different share classes, which are subject to various fee structures and therefore yield total return deviations.

Within each mutual fund category, Morningstar assigns five stars to the top 10 percent of funds and only one star to the bottom 10 percent. Funds with at least three years of performance are rated by separate time periods (three, five and 10 years); the company doesn’t rate funds with less than a three-year history.

The following factors are combined to create an overall rating for each mutual fund:

  • If a fund is three to five years old, its overall star rating will be the three-year rating;
  • If a fund is five to 10 years old, its overall rating will be 60 percent of the five-year rating and 40 percent of the three-year rating;
  • If a fund is more than 10 years old, its overall rating will be 50 percent of the 10-year rating, 30 percent of the five-year rating and 20 percent of the three-year rating.

The Morningstar Style Box is a visual graphic consisting of a nine-square grid. The Style Box for equity funds features a horizontal axis depicting value, growth and blend investment management styles, which is cross-sectioned against a vertical axis for large-, mid- or small-cap equities. To demonstrate a mutual fund’s style, for example, a filled-in box that meets at growth and large-cap would indicate that the majority of the fund’s holdings are large-cap and the fund manager uses a growth style of investment management.

The Fixed-Income Style Box depicts a horizontal axis for duration (short/limited, intermediate/moderate, long-term/extensive), which is an indicator of a fund’s interest rate sensitivity. The vertical axis depicts a fund’s credit quality as either low, medium or high.

The Morningstar Rating system for investments and the Morningstar Style Box combine to provide both investors and money managers a convenient way to evaluate mutual funds, particularly in comparison with similar types of investment options.



Tip of the Month for July 2016

IRS Aims to Boost Small Business Tax Compliance

The Internal Revenue Service believes the small business sector is a major source of under-reported income.For the past four years, the agency has run a special independent office charged with finding how to encourage small business owners to report their earnings more accurately. The IRS finds sole proprietors especially challenging. Many operate on a cash basis – at least in part – and report income on their personal tax returns, making it difficult for the taxman to correctly identify the sources of their cash flow.

The research that has been conducted to date has brought forth some interesting statistics:

  • Estimates suggest that as much as 60 percent of small business revenue isn’t tracked on tax information documents submitted by third parties, though this is likely to change as technology advances;
  • Studies suggest that tax scofflaws are more likely to be found in certain areas of the United States such as California, Georgia, Texas and other Southern states;
  • Reports suggested that intentional under-reporting was less of a problem than under-reporting due to confusion about the tax code and/or poor record keeping;
  • Business owners who are caught by the IRS often become more compliant – but only for a few years – with many back-sliding into the bad habits that triggered an audit in the first place.

Small business owners would be well advised to pay attention to the IRS’ focus on entrepreneurs. The majority of audit candidates are not picked by random selection. The IRS makes use of an algorithm to try to identify taxpayers most likely to have unreported income. This algorithm appears to be a very effective way to sniff out tax offenders. Once a taxpayer is flagged, almost 90 percent ultimately prove to owe more money than they reported. However, the agency’s budget cuts have hit home, and it must be noted that only approximately 1.5 percent of self-employed taxpayers are audited each year.

Whether intentional or not, the IRS estimates unpaid tax revenue at more than $450 billion a year. Although audits are used more than any other tool to catch business owners who under-report their income, the discovery process is burdensome to the IRS. The amount of time, staff and money needed to conduct them makes audits a costly method of collecting taxes from scofflaws. It is seen as an increasingly inefficient way to close the tax gap.

This doesn’t mean that audits are going away, but it does mean that the IRS is actively trying to find new ways to encourage business owners to report earnings more accurately. Tax experts urge their small business clients to recognize that increasingly complicated reporting requirements make it crucial for entrepreneurs to seek professional tax help. The interconnectivity of technology in the finance and banking world means more transparency and less privacy for taxpayers. The odds might be slim, but business owners should be prepared for the possibility of an audit and be scrupulous in their documentation. Without a paper trail, even the most honest business owners are subject to a time-consuming and worrisome review. It’s simply not worth the risk.

Love Losing Money on the Side?

Tax and Financial News for June 2016

Love Losing Money on the Side?

This might come as a shock to those who think the IRS has already been aggressive in enforcing hobby loss limitations, but the Treasury Inspector General for Tax Administration (TIGTA) disagrees. The TIGTA believes the IRS has been lax in going after hobby loss tax cases, and this is likely a harbinger for increased crackdowns on hobby loss deductions. The TIGTA’s most recent report also provides valuable information about what the service considers potential audit triggers and how to avoid them.

Hobby Versus Business

Nine factors are looked at in distinguishing between a hobby and a business activity. They are:

  1. How you execute the activity
  2. Your level of expertise
  3. How much time and effort you put into the activity
  4. The amount of occasional profits, if any
  5. Whether or not you think the assets used in the activity will increase in value
  6. Your financial status
  7. Prior success in similar ventures or activities
  8. Income or loss history associated with an activity
  9. Elements of recreation involved in the activity

Bear in mind that not all these factors are seen as equal. Let’s look at ways to protect yourself if you want to stay out of trouble.

Play Wait and See

The IRS makes the assumption that if you made money in any three of the last five years, then you are really in business and trying to turn a profit. Horses are the exception, where if you make money in any two out of the last seven years you are generally safe.

You can front-run the IRS and buy yourself more time in determining whether your activity qualifies as a business or a hobby by filing Form 5213. Form 5213 is an election that extends the make versus lose money presumption, but that extra time comes with the catch of extending the statute of limitations.

Put It Off Until Tomorrow

Suppose you lost money in your first two years. Now in year three things are not looking too good either. You can avoid the presumption that your activity is a hobby by deferring losses. If you can consider yourself as not “materially participating” in the activity, then your losses will be considered passive and you will not be able to deduct them on your return in that year. Instead they are suspended and carried forward so you can use them against a profitable year in the future.

Write a Business Plan

You can go a long way to help substantiate that your activity is a real business and not just a hobby by writing a business plan. Changing that business plan to adapt to circumstances helps even more. If you have losses year after year and are not documenting a concrete strategy to avoid it and turn a profit, that doesn’t bode well for you. The IRS knows people lose money on ventures, but they expect if you are running a business that you will try to avoid this by changing your strategy. No one in a legitimate business strives to constantly lose money.


Keep these actions in mind and you can avoid a lot of potential trouble with any side venture or business you engage in that does not make money right away.



General Business News for June 2016

Understanding Second-Stage Entrepreneurship

For the 10 percent of startups that survive, according to Forbes, there is what’s called second-stage entrepreneurship. But what, exactly, defines second-stage entrepreneurship and how do businesses know when they’ve reached it?

Recognizable Signs

When it comes to identifying a second-stage entrepreneur, there are some general guidelines that experts cite to define this stage of business. The first sign is when a business plan is replaced by long-term calculated marketing plans. Another sign is when a real estate decision goes from finding an initial location to adding on to a building or moving into a larger factory or office space. Other signs can include moving into another, complementary product or service line or expanding across the country or an international border. Generally, in more measurable terms, it’s recognized as a business employing 10 to approximately 100 workers and making anywhere between $750,000 and $50 million in annual income.

A Shifting Focus

Moving beyond these recognizable signs, a second-stage entrepreneur’s strategy moves from a narrow focus to the bigger picture. New challenges to survival in this stage of entrepreneurship include soliciting financing from either venture capital or angel investors. While this can provide a financial jumpstart to accelerated growth, business owners should consider the potential sacrifice of the direction of the company’s path when it comes to existing or new products or services. More established companies will be less concerned with survival and beating out competition and more concerned with moving into a creative path that can help distinguish itself from competitors.    

As a company grows and expands, it takes a careful eye for it to make it through this stage. One key to success is having a management team committed to coaching its sales staff to help them tweak their sales process and strive for increasing goals.

Another cornerstone of a second-stage business is when it dedicates specialized staff to curate relationships with customers to deliver personalized experiences, not just rote customer service practices. This external commitment to customer service can also translate to a supportive culture for all team members, helping them feel valued and promote a desire to continually want to contribute to the organization’s mission.

Considerations Moving Forward

One reason why some startups and second-stage business have an edge in succeeding is first identifying and then attempting to replicate the behavior of a star salesperson that helped to accelerate its growth. There are two approaches that can be taken after an exemplary employee is identified. The first is observing and replicating the behavior, as best as possible, by training new candidates in the same role based on what was observed from the high performing employee. Another consideration is balancing the candidate’s desire for a promotion with keeping them in the same role, letting them focus on the task they excel at.

For entrepreneurs at the second stage of an organization’s development, many of the same principles still apply as during the start-up phase. However, there are many more considerations to take into account when modifying one’s business plan as it morphs into a longer term business strategy and development plan for the future.



Tip of the Month for June 2016

Tip: How to Encourage Clients to Pay on Time

Clients who are slow to pay cause real problems for firms that provide them with products or services. They create more work for your staff and jeopardize mutual goodwill. If you are running a small business, slow payments can seriously disrupt your cash flow and threaten your firm’s livelihood. Here are a few effective tips that encourage prompt payment and minimize any possible damage to client relationships.

  • Always get it in writing. Regardless of whether the client is an old colleague or a family member, have a written, signed contract that sets out your billing rates, practices and policies. This should include an agreement on what constitutes prompt payment, discusses out-of-pocket charges and defines what penalties may be imposed if payments are not made promptly.
  • If payments are late, figure out where the problem lies. Ask your client what the problem is, and how you can help find a solution. Find out if there are some simple fixes that will get your invoices reviewed and paid faster. If the client has inexperienced staff, ask if you can help them understand your bills better. Encourage your clients to call to discuss any issues or questions rather than delaying processing. Ask what you can do to improve your procedures and you’ll encourage your clients to do their part to improve their efficiency.
  • Consider using incentives, like discounts for prompt payment, but be careful not to sell your services short. Be equally willing to apply disincentives, too, if you believe this will be more effective. Some clients pay more attention to the possibility of penalties.
  • Make sure your billing/invoicing is easy to understand and process. Accept automated paperless payments and offer several options – credit card, scheduled bank account payments or PayPal. Online payment systems can be convenient for both the client and your company. And, as an added bonus, online payments can be set up to send automatic reminders to the client until the account is paid.
  • Do your clients tend to require the same amount of goods or services each month? Would it make sense for you and your client to agree to a monthly retainer, or a recurring billing cycle? You will want to clarify what the retainer includes and come to an agreement on how overages will be tracked and billed.
  • Ask for an upfront partial payment from new clients. This works well in situations when the company (seller) is embarking on a project for a client that will require the company to pay workers and suppliers for the duration of the project.
  • If you are going to spend significant amounts of your firm’s money on out-of-pocket expenses (e.g. travel costs) and vendor purchases (e.g. raw materials) on behalf of clients, you should have an agreement in place that allows you to pre-bill or submit separate out-of-pocket charges for speedy settlement. Few factors may jeopardize a company’s bottom line faster than extending credit to a client in the form of paying significant out-of-pocket purchases on their behalf. Set a dollar limit on the amount you are willing to carry for each client. If you prefer to NOT carry these charges, work out an agreement to have major out-of-pocket expenses and vendor fees be billed directly to the client.

Decide which ideas will work best in your area of business, but avoid doing nothing. If you are expected to meet your clients’ deadlines and needs then you have the right to expect prompt payment for your goods or services.

Tax Scam Season is Back

Tax and Financial News for May 2016

Tax Scam Season is Back

Cybercriminals are on the prowl, and phishing schemes are surging this year. Stolen information is increasingly being used to file fake tax returns.

IRS experts expect an increase in tax fraud this year. While the agency often is able to identify and catch fraudulent filings, some fake returns do get through. In 2013, for example, the Government Accountability Office found that the IRS stopped $24.2 billion in fake tax return refunds, but still paid out $5.8 billion. Below are a few current schemes to be aware of and some ways you can protect yourself.

Medical Records

It is usually not the same cybercriminals who steal the information and then file the fake tax returns. One set will steal the underlying records or information and then sell it to others, who then file fake tax returns. Given the lucrative nature of phony tax return filing, it creates a large demand for criminals who specialize in stealing the information as medical records are worth more than most sources. Stolen health care records often contain everything an identity thief needs, including Social Security numbers, and as a result can sell for multiples of what credit card records price at on the black market.

Beware the Boss

Another resurgent scam comes in the form of identity thieves sending out phony emails pretending to be a top level executive at an employee’s company, often the president or CEO. In these emails, the writer demands W-2 files in electronic format, usually with a sense of extreme urgency.

Unlike other “boss request” scams, this set is not targeting individual employees and instead targets human resources and payroll professionals. Phishing for W-2s isn’t a new trick, but it can catch people off guard who have never run into it before. Obtaining a W-2 makes it extremely easy to create a fake tax return and make up huge false refund requests – hence the rise of this scam.

The current crop of these emails is more sophisticated than similar scams in the past. They create more plausibility by only targeting human resources and payroll employees and come from authentic looking email addresses. According to the IRS, some examples of the text in these emails include:

  • “Kindly send me the individual 2015 W-2 (PDF) and earnings summary of all W-2s of our company staff for a quick review.”
  • “I want you to send me the list of W-2 copy of employees’ wage and tax statements for 2015. I need them in PDF file type, and you can send it as an attachment. Kindly prepare the lists and email them to me ASAP.”

Some of the key tip-offs that these emails are phony are the use of the words “kindly”, “PDF” and anything that implies extreme urgency in response time.

Protect Yourself

There are numerous actions you can take to protect yourself.

  • Avoid giving out your Social Security number whenever possible – even to your doctor. While it might be standard procedure, in most cases health care providers do not need your Social Security number.
  • File your tax returns as soon as you can each year. The earlier you file, the less time criminals have to file a fake tax return.
  • Do not click on any links in emails or call back any numbers left for you in a voicemail as they can compromise your computer and may increase phone calls from scammers.
  • If your accountant offers a secure file service to transmit documents electronically, make sure you use it.

If you have been a victim of identity theft, you should monitor your brokerage, bank and credit card accounts for any unusual activity. Finally, always remember that the IRS does not initiate contact with taxpayers by e-mail or phone – only by mail.



General Business News for May 2016
How to Reduce the Need for Exit Interviews

Employees who quit are a fact of life for business owners and their managers. For the owners and managers of some businesses, exit interviews can provide insight into why employees leave for another organization. While not every employee who quits can be persuaded to stay in their position, businesses can learn how to help reduce the number of employees who leave in the future through exit interviews.

Exit Interview Concerns

One concern about an exit interview is that employees might not always be honest as to why they’re leaving. While an employee may say they are leaving for a position that is located closer to home or provides work flexibility with more remote time, for example, the real reason might be an abrasive manager or a recruiter who approached them through an agency.  

Common Reasons Employees Leave

While some employees leave organizations due to a lack of advancement or dissatisfaction with their pay, one of the main reasons people leave is their manager’s workstyle – or lack thereof. Other reasons might include changing the employee’s responsibilities from the job description; requiring excessive overtime; or situations where an employee is not allowed to explore his or her creativity on work-related projects. Another cause for employees to leave their job centers on concerns about performance and professional development that get ignored by managers. If managers fail to pay attention, workers might become disengaged because of their inability to expand their skill set. Don’t be discouraged, though. There are some strategies employers can use to better communicate with new employees – and keep them around for a longer term.

Use an Employee Entrance Questionnaire

Using an employee entrance questionnaire helps organizations determine how well they’ve met promises they made to new employees by measuring the new employee’s perception of their role. Along with measuring how well an employee is in tune with a company’s mission and culture, it can determine if the role’s goals are articulated well, and if the level of training is in-line with the required responsibilities. Another benefit of giving this survey during the on-boarding process is it offers a higher chance of more truthful feedback. It also provides an opportunity to work with employees – individually and in groups – if the same compliant is reported by multiple people.

How to Improve the Workplace for Retention

While every workplace is different, there are some things most workplaces can implement to help retain talent. If the budget isn’t there for all managers, prioritize training for front-line managers and supervisors who can work with entry-level employees that are most likely to leave. Other ideas include mentoring workers to evaluate their performance, along with giving employees a chance to provide an honest assessment of their job satisfaction, especially in the first 90 days.

Considerations When Conducting Exit Interviews

One consideration to reduce the potential for emotional employees is to schedule the interview as soon as they give notice, instead of letting the employee stew over the reasons they want to leave. Another consideration when conducting exit interviews is to make sure a neutral third-party, such as an HR employee or manager from a different department, conducts the exit interview. If the employee’s direct supervisor/manager conducts it, an employee’s honesty will almost certainly be suppressed.

While there’s no magic bullet to retaining staff, using exit interviews and implementing that feedback with new candidates gives you the opportunity to reduce ongoing turnover.



Tip of the Month for May 2016

Tip: Warning Signs of Identity Theft and What To Do

Identity theft remains one of the most pervasive crimes in the United States. As technology gets smarter, so do the scammers. Here are the most common warning signs that your personal/confidential information may have been stolen.

  • You see charges you don’t recognize (or companies you don’t know) on your credit card bill
  • Withdrawals you haven’t authorized are on your bank statements
  • The Internal Revenue Service advises you that more than one tax return was filed in your name. (Note:  The IRS never makes phone calls requesting information —but scammers do. Don’t give personal information to anyone you don’t know over the phone.)
  • You receive bills from doctors or hospitals for services you didn’t receive
  • Your health insurance denies you coverage based on records that don’t reflect your health issues
  • Your IP address is hijacked by online crooks for criminal activities

You might get notifications from companies warning that their systems (and hence your data) have been comprised by cyber crooks. This is not a clear-cut sign that your data has been stolen, but it should encourage you to check your bank accounts and credit reports immediately.

Immediate Action

If you believe you are a victim of identity theft, here’s what to do:

  1. Contact any one of the three credit reporting agencies Experian (, Equifax (, or TransUnion ( Ask the agency to put out a 90-day fraud alert to notify lenders and creditors to take extra steps to confirm your identity before entering into any business transaction. It doesn’t matter which agency you contact – it will automatically contact the other two on your behalf. Alternatively, you may choose to contact and request that each agency (you will have to contact each of the three agencies) put a security freeze on your credit reports. This means that no new creditors may access your credit reports and that applications will be denied even if the thief has your Social Security number. In the future, you will have to contact each credit reporting agency and go through their specific procedures to “unfreeze” your credit report.
  2. Obtain credit reports from all the above mentioned agencies. You are entitled to a free copy from each. Review the reports promptly, flag any fraudulent items and begin the dispute process.
  3. Contact every organization that you believe may be affected. That means credit card companies, banks, healthcare insurance providers, Social Security Administration, etc.
  4. Make a report to the authorities. This requires two steps – first, contact your local law enforcement office to report the crime, and then contact the Federal Trade Commission (FTC) to create an identity theft report. You can reach the FTC online at: or by phone at: 877-ID THEFT.
  5. Protect your Social Security number. If there is any chance it is in the wrong hands, contact the Social Security Administration and the IRS. A thief might try to steal your tax refund or seek benefits using your name.

Be proactive and don’t wait for trouble. Request the credit report you can obtain for free annually from each of the reporting agencies. Try staggering your requests so that you can review a report every fourth month.

Tax Tactics to Help With College Costs

Tax and Financial News for April 2016

Tax Tactics to Help With College Costs

Now that we are in the midst of tax filing season, it is a great time for families and college students to re-familiarize themselves on the available tax benefits that could potentially lower higher education costs.

According to research by Sallie Mae, the average family with higher education costs spends more than $24,000 a year on college. However, only one-third of these same families take advantage of federal tax credits and deductions that can help make college more affordable.

The availability of these tax benefits are based on a number of criteria and have varying rules and limitations. Understanding and deciding what is best for your situation can be tricky and take time, but is often well worth it. Hiring a CPA can be useful to help you navigate the process. Now let’s look at the details.

American Opportunity Tax Credit

Families can receive a credit of up to $2,500/year per student for up to four years. This is particularly beneficial if you have more than one student in college at the same time. It is also partially refundable, allowing you to receive up to $1,000 even if you owe no taxes.

The credit is limited by a taxpayer’s adjusted gross income. It starts to phase out at $80,000 and $160,000 for single and married filers, respectively, and is completely unavailable once AGI reaches $90,000 and $180,000.

Lifetime Learning Credit

This credit offers up to $2,000 a year, per taxpayer return. Note that this credit is not per student, but per taxpayer. Any post-high school education qualifies and there is no limit on how long it can be claimed. Also, unlike the American Opportunity Credit, this one is not refundable.

This credit is also subject to AGI limits. The lifetime learning credit starts to phase out at $55,000 for single filers and $110,000 for joint filers and becomes completely unavailable at $65,000 and $130,000, respectively.

Tuition and Fees Deduction

Even if you don’t qualify for one of the above credits, you may still be able to deduct qualified tuition and fees. The tuition and fees deduction is available even if you do not itemize your deductions.

Single filers with an AGI of $65,000 or less can deduct up to $4,000 and up to $2,000 for those between $65,000 and $80,000. Married taxpayers filing jointly are eligible for the $4,000 deduction if their AGI is less than $130,000 and they can get the $2,000 deduction with an AGI between $130,000 and $160,000. Once a taxpayer exceeds these income thresholds, no deduction is available.

The Fine Print

There are a number of nuisances to remember as you navigate the available credits and deductions. For example, if a student qualifies for more than one of the above you can only take a credit or the deduction, but not both. You can mix and match, however. If a family has more than one student, you can claim different credits for different children.

One of the more common approaches to maximize these credits is to claim the American Opportunity Tax Credit for four years when a student is an undergraduate and then switch to the Lifetime Learning Credit for graduate school.

Student Loan Interest Deduction

If you have student loans, the interest you pay may also be deductible. You do not need to itemize to receive the student loan interest deduction. The deduction offers up to $2,500 off of your taxable income for single filers making up to $80,000 and married taxpayers up to $160,000. The deduction is available to the taxpayer obligated to repay the loan. In other words, a student who is not claimed as a dependent on another taxpayer’s return may claim the deduction, even if the parent is the one repaying the loan.


General Business News for April 2016

Can Virtual Reality Be Used as a Marketing Tool?

By 2020, the virtual reality market is estimated to be worth $30 million, according to Rutgers University Online Master in Business Administration program.

For those wondering if virtual reality can be used for marketing purposes, the question is not if virtual reality will be able to be used to market, but how it can be used to market products and services. Based on the same Rutgers’ research, seven in 10 consumers decide what brand they’ll purchase while they’re shopping – not before they go to the store. Virtual reality can mimic a proposed store outlet, thereby providing a cost effective opportunity for a business to plan its marketing strategy

Investment and Market Research with Virtual Reality

Whether it’s a new hire or investing in commercial real estate, they both have their costs. Virtual reality can give candidates and employers a better chance to simulate work conditions to see if the candidate is a good fit for the position, such as driving a tractor trailer or a cruise ship. Similarly, before buying a building in a certain neighborhood or using a particular layout, virtual reality has the potential to let different users determine what types of products, aisle layout and even color schemes are the best fit for shoppers.

Potential Uses for Selling to Consumers

Depending on the type of company, virtual reality has many applications – from presenting a new store to helping a patient or client know where to find an office for their first visit. Whether it’s a new retail chain or one that’s already in the area, a newly remolded store’s layout can be seen in 3-D, along with new products or in-store displays. This can give a more authentic experience than a video or virtual tour on a website.

Using Virtual Reality to Sell to Businesses

Another way virtual reality can be used includes businesses selling their products or services to other companies. Safety compliance firms that consult with retail or manufacturing companies can show potential clients how virtual reality can educate new and existing employees on safety procedures, which could result in a reduced number of worker compensation or personal injury claims.

In the legal profession, virtual reality can also be used to depict crime scenes in 3-D versus the traditional two-dimensional depiction on paper or computer. Being able to observe a criminal case with a 360-degree view of people and moving objects, such as a knife or bullet traversing the air, offers a holistic perspective for jurors to make a decision from the viewpoint of the victim, defendant or witnesses.

Potential Drawback

Virtual reality is a solo activity, so it’s unlike social media that can be shared with a click of the mouse. Therefore using as a sole means of marketing eliminates the opportunity for existing or potential customers to share the virtual content with friends and family. Since this platform is so new – and comes with the additional cost of creating original content – it remains to be seen whether virtual reality marketing will become more mainstream or just be a passing trend.

Virtual reality holds a lot of promise for businesses to use as a marketing tool for their own services or products, but its success will ultimately depend on mass adoption and its ability to synchronize with other mobile and computing technology.


What’s New in Technology for April 2016

Technology: Ransomware – Insidious and Growing Fast

Imagine a major hospital crippled by a deliberate effort to block its access to patients’ records. After the hospital pays online extortionists a hefty ransom, the cyber crooks will unlock the data. Meanwhile, the medical facility lacked access to its network, email and patient data – including lab work and scans. This is not the plot of a TV movie, but just one example of a disturbing new type of cybercrime that is becoming widespread in Europe and the United States.

Ransomware criminals use encryption to block users from their online files – releasing the locked-up data when the targeted entity pays a ransom. Instances of this type of online extortion grew a whopping 170 percent in 2015 – with the majority of cases occurring in the U.K. Attacks in the United States have been on the rise, and now the majority of attacks worldwide occur here.

Impact on Small Businesses

In the beginning, attacks targeted small and medium-sized businesses as well as individual consumers. Cyber criminals were more likely to encounter weaker security systems and lax backup procedures at smaller firms, and many cyber-crooks chose high volume and lower returns rather than tackling larger organizations with more sophisticated security protection. Criminals discovered that victims were most likely to pay up without contacting the police if the ransom demand stayed modest – within the hundreds of dollars realm. Online extortionists now have turned their attention to larger organizations, demanding tens of thousands of dollars.

How do the online extortionists get access?

Usually through infected email. Investigators cannot unlock the ransomed files, which are heavily encrypted, unless they find the cyber-crooks’ control servers, which could be anywhere in the world.

What can you do?

A notorious ransomware threat known as Cryptolocker comes as an email or via a downloader brought along as an extra component. Its authors continue to create new variants, target different groups and repel changes in security technology. Seek professional IT assistance to lessen your vulnerability. In the interim, here are several simple steps you can take to protect your files.

  1. Back up your data to safe storage frequently. That way, if you are attacked, you can restore your system to an earlier setting without losing many files. Cryptolockerattacks all drives that are mapped (e.g., those tagged D or E drives), including external drives like USB thumb drives. This means that your backup system must either include an external drive that is disconnected when not actively backing up your files or an online provider of automated backup services.
  2. Crooks use email (with attachments) as a way into victims’ systems. Recently, Cryptolocker has used files with the extension PDF.EXE (this may have changed by the time you read this). Set your gateway mail scanner to filter files and deny entry to emails with two file extensions – the last extension being the executable component.
  3. If your computer is able to allow others to access your machine remotely and you don’t use this function, known as Remote Desktop Protocol or RDP, disable it. This is another favorite entry point for ransomware.
  4. Keep your security software fully updated – use automatic updates, whenever possible. Don’t delay downloading manufacturers’ updates. Use top quality anti-malware PLUS a software firewall.

Following recent brazen attacks on the BBC and The New York Times, Ransomware has attracted significant attention. It is a major threat, but smart defensive strategies combined with good recovery protocols can help keep your data safe.

Pay Up or Stay Home

Tax and Financial News for March 2016

Pay Up or Stay Home

If you’re looking to use your U.S. passport on your next international trip and you’re delinquent on your taxes, some recent changes to federal law may have you grounded.

When President Obama signed the FAST Act (Fixing America’s Surface Transportation Act) into law, he expanded the federal government’s ability to restrict who can obtain a new passport or renew an existing one. Previously, the Secretary of State was empowered to deny new and renewed passports for non-custodial parents if their state of residence informed the Department of State of a child support debt of more than $2,500. However, the FAST Act also empowers the Secretary of State to deny delinquent taxpayers the ability to obtain a new passport or renew an existing one.

This new law will require the Secretary of State to withhold issuing new passports and renewal requests for anyone who is a seriously delinquent taxpayer. Similarly, the Secretary of State also is allowed to invalidate and rescind any active passport held by a seriously delinquent taxpayer.

Under this FAST Act, taxpayers are considered delinquent when their federal tax liability exceeds $50,000, including penalties and interest and a lien or notice of levy is filed against the debt. Moving forward, the $50,000 threshold will be indexed according to inflation. An exception for the passport issuance or renewal may be made in certain cases: for taxpayers with federal tax debt that qualifies for an Offer-in-Compromise (OIC); for taxpayers who are eligible for innocent spouse relief; for taxpayers who have debt that is frozen due to an appeal for a collection due process (CDP) hearing; or for taxpayers who have worked out a collection agreement.

The question persists as to how to make sure that the innocent or exempted taxpayers can still exercise their right to travel internationally with a passport. This depends on the identification of seriously delinquent taxpayers by the Commissioner of Internal Revenue and verification by the Secretary of the Treasury. These individuals’ names would then be transferred for identification from the Secretary of the Treasury to the Secretary of State.

As part of the law, taxpayers whose passport privileges may be revoked if they don’t satisfy outstanding federal tax debt are first notified through the IRS’ standard mailed debt notices so they can address the issue. This is done to help taxpayers resolve their federal tax obligations and prevent passport suspension or revocation in the future. However, one potential pitfall of this method of notification is once a taxpayer sees their notification for tax debt, they may not always pay attention to the potential passport issue.

For those taxpayers who believe they are incorrectly assigned to the no passport list, the law allows for a “reversal of certification” provision. If the determination was made incorrectly or the federal tax debt is satisfied or no longer meets the threshold, the IRS must inform the Secretary of the Treasury who in turn will make the Secretary of State aware of the error. Additionally, since the corrective action to get removed from the list can be time intensive, taxpayers may petition the court to have their passport privileges restored while the administrative procedures are ongoing.



General Business News for March 2016

Most Common Startup Mistakes (and How to Avoid Them)

While there are many business successes, there are unfortunately many more business failures.

Various factors, including the type of industry or the age of a business, can contribute to its chances of failure, according to the Statistic Brain Research Institute. The research found that the older a business is, the more likely it will fail. While a 5-year-old business has a 55 percent likelihood of failure, a 10-year-old business has a 71 percent chance. Similarly, only 37 percent of information-based businesses failed after four years, compared to 58 percent of finance, insurance and real estate businesses during the same timeframe. In order to prevent the majority of failures, there are some ways that businesses can be proactive and reduce their chances of going under.

Not Being Social Enough

Not using social media at all; failing to use the right kind of social media; or not knowing how to use it effectively are some reasons startups fail. Whether it’s a lack of time or simply not keeping up with the most popular brands, lack of a presence of social media is one reason startups fail. Examples of positive social media use include using LinkedIn to search for new hires and using the company’s profile to advertise for employment. Twitter can be used to engage and have conversations with potential customers and future employees by showing recent work products and seeking community engagement. Showing your prospective customers photos, videos and links to authoritative websites will often provide your company with invaluable PR.

Not Being Insured Well Enough

Another thing attributed to startup failures, especially for those that have even a few employees, is lack of insurance. Even when an entrepreneur is working out of his or her home, insurance may be necessary if clients come and visit the home office. Similarly, business auto insurance may also be necessary if client meetings are necessary at a client’s place of work. Malpractice or errors and omission insurance may not be required, but even if a lawsuit is baseless, the money and time it takes to defend and dismiss a lawsuit can take away from an owner’s time, potentially reducing cash flow.

Poor Business Name Search

Picking a business name is a critical part of branding one’s company, but not performing a trademark search can result in lost money and even a complete business failure. Since a business name goes into the LLC or corporation filing paperwork, signage, a website, business cards and what potential customers see, it’s imperative that a thorough check is done on the name’s availability. If the name is already in use and trademarked, legal costs could become pricey.  

Not Using Enough Varied Marketing Techniques

A non-diverse marketing approach can make or break a startup; examples include the inability to scale product sales or attract investments from venture capitalists. Startups that leverage their advertising through social sales, word-of-mouth advertising and partnering with businesses in non-competing, complementary industries can increase the likelihood of sales.

Startup entrepreneurs who fail to be cognizant of their communication skills and styles can spell doom for their ventures. This is especially true if the startup is looking for Venture or Angel Capital funding. Meandering or looking down at the conference table instead of making eye contact does not convey confidence or display positive body language to potential investors.

For entrepreneurs who reduce or avoid these mistakes, the chances of their startup surviving and thriving are certainly increased. However, even the best startup can’t predict how its customer base or government regulations will ultimately impact its success.



What’s New in Technology for March 2016

Technology: What’s at Stake in the Apple vs. FBI Battle?

The encryption issue is not new. It started in the ’90s when encryption became more commonplace in consumer products, and has escalated to a full-scale, highly public debate between Apple – an industry leader in smart phone/mobile technology – and the FBI. Here is a concise look at what is at stake.

  • Technology companies have always developed and upgraded security methods to keep hackers from accessing private data. Since Edward Snowden went public with reports of government surveillance, these companies have changed their security protocols to protect users against government efforts to access private data.
  • Federal wire-tapping laws already give law enforcement access to data handled by phone carriers. This legislation doesn’t cover tech companies, and those companies are fighting hard to keep it that way.
  • Encryption is the magic that makes personal data safe. Once data is protected by encryption, the only way to access it is through the encryption key. No one – not even the manufacturer of the device or its software – can access the information without the encryption key.
  • Back in 2015, the FBI’s chief said the agency wanted back door access to encrypted data. When he did so, a howl of protest went out from security and technology professionals, as well as reporters and human rights activists, pointing out that doing so opened a virtual Pandora’s Box of problems – most particularly creating an enormous security risk as soon as a manufacturer weakened the water-tight nature of encryption. To the technology industry, the problems inherent in providing the possibility of such access far outweighed the advantage of doing so.
  • The FBI is not asking for Apple to help law enforcement break the encryption on iPhones. They want Apple to tamper with a security feature that makes it virtually impossible to guess the pin used to encrypt an iPhone. For this to happen, a backdoor would have to be built into the encryption protocol. Opponents believe that doing so would immediately open up a massive new opportunity for leaks or theft that potentially would give cyber-crooks and cyber-terrorists a chance to steal data at an unprecedented level. FBI supporters argue that such a feature already exists – a troubleshooting system that allows the company to update software without needing to know subscribers’ passwords. Industry analysts expect Apple to ramp up security on this particular feature in an effort to thwart the FBI’s proposal to highjack it for surveillance purposes.
  • The battle between big tech companies and the government is being fought in the media with both sides using emotional arguments to influence public opinion and obtain the solution they want. The FBI has chosen a public fight over access to a dead terrorist’s smart phone and has tapped the outrage of relatives of victims of the San Bernardino shootings to support its efforts to force tech giants like Apple and Google to make encrypted data accessible to law enforcement. On its part, Apple is running a hard-hitting PR effort, most recently evidenced by CEO Tim Cook’s open letter to customers, which appeared as paid commentary in prime media outlets.

The battle between the FBI and Apple has already reached the headlines and the law courts. Observers believe Congressional involvement will be necessary to resolve this issue in any meaningful way.

Tax Basics – What 20 and 30 Somethings Need to Know

Tax and Financial News for February 2016

Tax Basics – What 20 and 30 Somethings Need to Know

Whether you prepare your tax return yourself or hire a professional, there are certain things you should know. Often it is not until a person reaches their mid- to late twenties that tax returns become more complex and they need to be more informed. Below are seven fundamental tax concepts that usually are not taught – but everyone should know

  1. You might not even need to file – Just because you have income does not mean you need to file a federal income tax return. There are many factors affecting your need to file – from how much you earned to the source of your income, filing status, age, etc. You can try to figure this out yourself, but it is best to check with a tax pro to confirm, especially given the next item discussed below.
  2. You might not need to file – but you probably will want to – While you may not need to file a federal income tax return, you might still want to in order to get the benefit of certain tax breaks and credits. One example is the American Opportunity Credit related to qualified educational expenses, which can yield a refundable credit even if you don’t owe any tax.
  3. Not all deductions require you to itemize – Most taxpayers do not itemize their deductions. This is because itemized deductions only benefit you to the extent that they exceed your standard deduction. Often, people do not have enough deductions to exceed this. But just because you do not itemize deductions doesn’t mean you should ignore deductions altogether. Certain deductions are allowed without itemizing on page one of Form 1040. Examples include student loan interest, IRA contributions and qualified moving expenses, among others.
  4. Can’t pay? File anyway – Different penalties apply for failure to file a return and failure to pay your tax. This means that even if you cannot pay some or all of your tax bill, make sure you still file your return. It also means that you need to make sure you file even if you are getting a refund or breaking even.
  5. Extensions to file are not the same as extensions to pay – If you cannot file in time, you may request an automatic extension for more time to file. To do so, complete and submit Form 4868 Application for Automatic Extension of Time to File U.S. Individual Income Tax Return. As noted above, remember that an extension to file does not mean an extension of time to pay.
  6. Don’t mess with the IRS – If there is one organization you don’t want to mess around with, it is the IRS. This is not meant to scare you, but the IRS has extensive powers to go after taxpayers who fail to file, pay or both. For example, if you owe back taxes, the IRS can take it out of future refunds, garnish your wages or even revoke your passport. However, the agency also understands that sometimes things happen and people have trouble paying. There are various arrangements you can make with the IRS, such as payment plans, etc. The most important thing is to not bury your head and ignore the situation.
  7. There is no substitute for a good tax preparer – It might seem like a good idea to prepare your own taxes in order to save money or because you happen to be the rare breed that enjoys it, but it’s not always the best idea. Using a Certified Public Accountant (CPA) can help ensure that you save time, aggravation and best of all, money. Oftentimes the cost of hiring a professional preparer who stays current with the most recent tax law changes and has the experience of seeing many different situations can save you far more than it ends up costing.




General Business News for February 2016

Offices: Choosing to Keep Doors or Go Without Doors

While collaboration is a cornerstone of any workplace, the timeless question of whether or not go to a completely open office space still exists. While open offices have their advantages, there are some drawbacks to consider.

With the open office trend gaining steam, more workers have little to no dividers between themselves and their coworkers. Should the trend to promote open offices continue or does it need to be balanced with the traditional closed office?

Advantages of an Open Office

From the employer perspective, open offices provide the ability to place employees in teams based on skill-sets. For example, a team of four or six workers can group their desks together into teams comprised of a computer coder and creative types, such as graphic designers and copywriters. Along with having workers within earshot of each other, employers are also able to monitor their employees’ Internet use, productivity and work habits.


While workers have individual work styles, open offices commonly present employees with focus problems. They often complain about the lack of solitude, which can make them less productive compared to those who enjoy cubicles or offices. Another potential drawback pertains to generational preferences, which can further hinder productivity. Baby boomers may favor closed office setups, whereas millennials tend to prefer the open office layout.

Strategies to Make an Open Office Work

One way to determine if an open office is right for workers is to screen new hires to see if they have an aptitude for an open office. Using a multistep approach, interviewers can start off by interviewing a large group of candidates, pairing them and assigning a logic puzzle to solve to see how they work together. Observing how well they communicate and work on a problem together can be the first step to determining aptitude for open offices.

Some companies pay select candidates to work with their existing employees for a day or even a multi-week trial before hiring to gauge how well they work in an open space environment.

Open Office Workplace Compromises

However, this doesn’t mean current and new hires should be disregarded simply because they are less productive in an open work space. For skilled workers competent in their respective field but not well suited for open offices, there are alternative accommodations. Options include providing noise-cancellation/music headphones, portable desks with privacy walls, or partially enclosing corners of the office building to enable workers to focus on special projects.

While open offices offer the potential for increased collaboration and leverage the synergy of a group work, the pendulum from closed offices may have swung too far in the other direction. An individual business can work to discover an ideal combination of open and closed office spaces through trial and error.


What’s New in Technology for February 2016

Technology: Leveraging the ‘Gig’ Economy

The so-called “gig” economy allows individual workers to freelance their skills to meet the on-demand needs of clients by using mobile technology. In 2015, the gig economy gained a significant foothold as businesses and consumers alike began to look beyond the transportation and hospitality sectors (think Uber and AirBnB) to take advantage of other apps and platforms that hook them up with on-demand services.

Here’s how the gig economy might affect your business.

  • The driving force behind this new on-demand economy is the proliferation of smartphones and other hand-held technology devices that offer computing power comparable to that of desktop computers in the ’90s. By connecting with each other and to cloud computing, mobile devices give people the freedom to find effective and efficient answers to business problems that previously would have been resolved within the structure of a traditional business firm or company. Workers are able to enjoy flexible hours, a greater choice of income-generating options, and the opportunity to gain work experience and boost their incomes.
  • The gig economy is no longer primarily comprised of younger people looking for supplemental income. Specialized platforms are competing with traditional providers of professional services, such as tutoring, legal services, business consulting and computer programming. Whether employers need specific professional talents for temporary situations or a few people to take on a short turn-key project, almost certainly there is an app that can identify suitable workers at competitive prices.
  • There are many on-demand apps. Some, like Handy,match service jobs with independent contractors for tasks that might include house cleaning, laundry services or travel booking. Also, there are sites like Amazon’s Turk, where customers can post any task requiring human intelligence, and where workers can review opportunities listed according to task and price. Highly specialized sites like Medicast allow patients to book a house call from a doctor using an app that records both the location and symptoms of the patient, while others are devoted to providing creative directors or commercial artists to businesses in the entertainment and advertising industries.
  • Though this brave new world offers great options to workers and business owners, it has not come about without creating issues for the public and private sector. Business owners face the significant challenge of managing and training an on-demand workforce in which workers may be scattered across different time zones. Quality control is another key concern. In response, on-demand platforms are adopting more extensive screening and vetting processes. Doing so requires them to pass on the costs of such research, diminishing the cost advantages that made these options attractive to their customers in the first place.

Perhaps the biggest challenge will be for governments – including the U.S. government – to re-think how workers are protected and how pensions and health care benefits are administered. Regulatory and social systems, developed when freelancers and contract workers were in the minority, will need to change to allow individual workers to take control of their health care and retirement needs in an on-demand economy.

Tax Considerations When Delaying Social Security

Tax and Financial News for January 2016

Tax Considerations When Delaying Social Security

The timing of when you take your Social Security can have a potentially significant impact on your overall tax strategy during retirement. While each person’s case is unique, delaying Social Security often tends to be the best move. Generally, delaying Social Security gives you a better ability to manage tax brackets when you are no longer earning a salary. Let’s look at the details behind the decision.

Consider the case of a 62-year-old couple who is married and files taxes jointly. Also, assume that both are no longer working and have not yet claimed Social Security benefits. They could potentially spend $20,600 from tax-qualified accounts up to their standard deduction and personal exemption. Further, they also could realize an additional $74,900 of qualified dividends and long-term capital gains and qualified dividends from brokerage accounts while still having a federal tax bill of zero. This is due to the 0 percent long-term capital gain and qualified dividends rate for taxpayers in the 10 percent and 15 percent tax brackets.

If such a couple is wealthy enough, keeping their tax bill at or near zero may not be necessary or advantageous. In cases such as this, it would be beneficial to use these early retirement years without both a salary and Social Security benefits taken to make additional Roth conversions from their traditional IRAs. While engaging in such a strategy would require higher taxes in the near term (as well as trigger tax on the previously untaxed qualified dividends and long-term capital gains from above), there might be much less tax to pay later on.

Tax bracket management is also relevant because Social Security benefits can be taxable. Couples who are married and filing jointly may pay income tax on up to 85% percent of their Social Security benefits once their provisional income* is greater than $44,000. The taxability of Social Security benefits is an important concept for people to keep in mind since the provisional income threshold is not indexed for inflation. As a result, under the current system more and more people will eventually end up paying income tax on their Social Security benefits.

Delaying Social Security until age 70 reduces taxable income and provides more room for Roth conversions and realizing long-term capital gains on taxable accounts. Additionally, subsequent Roth distributions do not count when determining how much of Social Security is taxable. As a result, if you have the capacity to get a large portion of your traditional IRAs converted to Roth accounts before age 70, you can enjoy significant tax savings. Doing so can allow you to pay taxes at lower marginal tax rates and may also help later to lower the amount of required minimum distributions.

Overall, there are many potential tax benefits to delaying Social Security. The actual potential depends on a number of factors, such as overall income levels, sources and types of non-wage income and the composition of one’s retirement accounts. As a result, if you have the cash flow to enable putting off Social Security benefits, it might be worth talking with your tax advisor.

*Provisional income is defined as your adjusted gross income plus one-half of Social Security benefits plus tax-exempt interest.


What’s New in Technology for January 2016

Will Encryption Be Banned?

In light of the recent terrorist attacks, domestic and foreign governments have questioned how much access they should have to encryption keys and electronic backdoors. The debate of balancing the privacy of individuals and the need for law enforcement to have access to the exchange of information for public safety is once again on the table. How can encryption standards keep information safe from criminal hackers while balancing the right of the individual’s privacy in the government’s quest to maintain public safety?

Understanding the Risks in the Debate

The first step is to understand the upside and downside of increased access to computers and networks.

The primary contention for opponents of backdoor access for governments is that it would defeat security best practices, especially when it comes to perfect forward secrecy, where decryption keys are removed immediately after they are utilized. Another concern about putting in backdoors for public safety officials is that it would add another potential exploit for hackers to cause harm. In other words, code that’s intended to be utilized by public safety officials to monitor criminal activity can also be used by criminals to cause harm on a targeted network.

Many proponents of backdoor access for encryption argue that while people have a right to privacy, public safety officials should have access to electronic communication in order to circumvent terrorists and criminals alike who use encryption through Virtual Private Networks (VPN), full-disk encryption programs and even popular mobile device operating systems.

Potential for Misuse

Just as encryption can be used for protection against hackers, it can also be used for illegal purposes. Vulnerabilities discovered by malicious parties or security researchers can also be used by state entities (or those acting in concert with state agencies) to spy on private individuals.

The potential for misuse by any organization already exists when a previously unknown vulnerability in computer code is used. One example is the alleged Israeli-American malware that meddled with the Iranian nuclear program. If backdoors are mandated for technology companies, the potential for unauthorized monitoring of incoming and outgoing data is a constant threat for Internet users.

Factors Affecting the Debate

There are many private and public sector factors that impact the debate for government mandated backdoors against encrypted data. One common argument is that while terrorists are known to use encryption for unlawful purposes, many civilians use VPNs to protect themselves against hackers when conducting personal or financial transactions.

The question is also raised as to who really owns the data that’s subject to search by public safety officials. When data is created and sent through a telecommunication company’s system, questions could arise as to whether the customer or the telecommunication company can disclose the data.

The fight to insert encryption backdoors has met resistance on many fronts, including consumers, the technology sector, organizations with limited resources, and foreign developers who want to create their own encryption standards. Technology companies have already asserted that they value their customers’ privacy. Many customers are concerned with how companies hold and share their data, including how the company responds to data requests from the government. While there are reports the National Security Agency has the capability to break some encryption algorithms, the budget for these activities is limited. Also, foreign developers of encryption programs might be hesitant to disclose source code or add a backdoor.

The pushback from the private sector, along with the government’s limited capability, is expected to keep the encryption debate alive and well for the foreseeable future.



Tip of the Month for January 2016

Tip: How Gamification Plays With Employees

The International Foundation of Employee Benefit Plans conducted a study that revealed when health and wellness programs are executed as part of a comprehensive healthcare strategy, the cost can generate a return on investment of $3 for every $1 spent.

When it comes to wellness, factors such as stress, inertia and overindulgence can play a huge part in why we don’t do things we know are good for us. However, some workers might feel it’s intrusive for an employer to try to influence good health. Their response may be to experience even more stress, inertia and overindulgence – because now they’re expected to engage in healthier behaviors in addition to their work performance. This is why many companies have implemented a relatively new trend in wellness programs: gamification. Instead of setting up heavy-handed expectations and financial disincentives, they create a game out of adopting healthy behaviors.

Wellness gaming strategies have proven to be effective at engaging workers and motivating them to make changes in their behavior. This tactic generally involves three components: rules, rewards and social interaction/collaboration. For example, one company embarked on a companywide 10,000 steps walking program. Some employers pursued their goal as individuals, while others formed teams. Soon, employees were seen walking outside their workplace before and after work and during lunch hours. Individual and team goals were tracked and rewarded.

Some companies have introduced games that incorporate an immersion experience, where players are encouraged to role play by creating a game name and simulated personality. Some even develop their own game-generated catch-phrases to help stay motivated and share their enthusiasm for the game with others.

If you’re familiar with video gaming, the concept of gamer tags and role playing are very similar. For example, a department head may call himself Head Honcho and his assistant, The Gatekeeper.

Departments may stoke the fires of competition to see who or what team reaches their fitness goals first. Rather than a daily chore or item that must be checked off a worker’s to-do list, exercise becomes a shared and fun experience for employees.

Gamification typically incorporates social networking tools so that participants can track each other’s progress and interact from both work and home computers, tablets and smartphones. This helps many workers stay engaged in healthy activities even away from the office, so they don’t slack off over the weekend or when on vacation.

While early research has revealed positive results, the strategy is not without drawbacks. These drawbacks might include:

  1. Impact on work productivity
  2. Perceived infringement on personal time
  3. Conflicts that can arise between competitive vs. recreational participants
  4. Whether short-term rewards and incentives are effective at maintaining healthy behaviors over the long term

While fun and games may produce results in the short run, ultimately it’s up to each of us to make changes to our lifestyle. After all, without intrinsic motivation, people tend to return to their regular (often unhealthy) behaviors when the games get old.

Regardless, one study revealed that more than three-fourths of employees say rewards provide the incentive to participate in an employer wellness program. Consider that workers who already live healthy lifestyles will do so whether you introduce a game or not. It’s the ones that don’t that you need to motivate, and gaming often provides the right type of incentive.

The following are some guidelines to consider when developing a wellness gamification strategy:

  • Keep it simple, easy and achievable
  • Points, levels and rewards help drive engagement, ongoing employee participation and healthier behaviors
  • Periodically deploy new challenges to re-energize enthusiasm
  • Make it easy to track and monitor progress
  • Make it social – provide ways for employees to connect socially to share scores, talk about leader-boards, exchange tips/tricks and brag about their success
  • Get C-level buy in and participation, if possible
  • Capture data to gauge the game’s efficacy and use it to adjust the game to achieve ongoing results