Category Archives: Newsletters

SBA Rolls Out New $5B Grant Program for Small Businesses

Small businesses and nonprofit groups hardest hit by the coronavirus pandemic now are eligible for additional support under a $5 billion Small Business Administration program.
The new round of Economic Injury Disaster Loan assistance, known as Supplemental Targeted Advances, is available for up to 1 million small businesses and nonprofits with no more than 10 employees.

To qualify, applicants must be located in a low-income community; suffered greater than a 50% economic loss over an 8-week period since March 2, 2020 compared to the previous year; and have 10 or fewer employees.

You can get more information at SBA.gov/eidl. You can also email questions to TargetedAdvance@sba.gov.

To see if your business is located in a designated low-income area, you can use this map.

EIDL Loan and Advance Programs Reopen to All Eligible Small Businesses

The Small Business Administration (SBA) has announced it has reopened the Economic Injury Disaster Loan (EIDL) and EIDL Advance program portal to eligible businesses affected by the COVID-19 pandemic. Businesses can receive long-term, low-interest loans and emergency grants. This will help them recover from the disruptions that took place in their businesses. They can use the loan for paying rent, mortgage, vehicle leases, payroll, and other bills.

The second round of COVID-19 EIDL assistance also comes with improvements to the application and loan closing process. This includes deploying new technology and automated tools. The application process has been streamlined and the SBA says it should take you two hours and ten minutes or less to complete. Some $197 billion is available through the EIDL for working capital funds to small businesses.


 

  • With the EIDL businesses can borrow up to $2 million to provide working capital for expenses such as fixed debt and payroll costs. Eligible applicants can also get up to $10,000 ($1,000 per employee) in funds of emergency economic relief to businesses that are currently experiencing temporary hardships.
  • The loans have an interest rate of 3.75% for small businesses. And to keep payments affordable they come with long repayment terms of up to a maximum of 30 years. This includes the deferment of the first payment for one year.
  • With EIDL businesses can borrow up to $200,000 without a personal guarantee.
  • First-year tax returns are not required, and approval can be based on credit score.
  • Loans of $25,000 or less require no collateral. For loans above $25,000, you can use general security interest in business assets. Collateral can be machinery and equipment, furniture and fixtures, and others.

More Covid-19 Relief in the Future?

Since the declaration of the COVID-19 Pandemic, the SBA has approved over 3.6 million loans through the EIDL program in the first round.  The deadline for the second round of EIDL runs till December 31, 2021. A further COVID-19 relief assistance amounting to $1.9 trillion is undergoing debate in Washington. This follows Congress’ previous passing of a $900 billion relief measure.

The Top 10 PPP changes in the PROPOSED Bipartisan Emergency COVID Relief Act of 2020

December 18, 2020

Dear WZ Clients, Business Associates and Friends,

This week, details on the Emergency Coronavirus Relief Act were released and the proposed legislation includes significant updates to the Paycheck Protection Program (PPP). If approved, the bipartisan bill will make $267.5 billion additional funds available for PPP loans and $13.5 billion for Economic Injury Disaster Loans also overseen by the Small Business Association.

Congress is working to attach the bill to a government funding package to be approved this week. In anticipation of the approved bill, we have highlighted changes that will impact borrowers.

 

Changes affecting existing PPP loans

  1. Additional eligible expenses for loan forgiveness include:
  • Covered operations expenditures
  • Covered property damage costs
  • Covered supplier costs
  • Covered worker protection expenditures
  1. Changes to tax implications of PPP funds
  • Confirmation that forgiveness is non-taxable
  • Expenses are deductible
  • No reduction in basis in the borrowing entity
  1. Simplified application process for loans under $2 million
  • Loans up to $150,000 will require completion of a one-page online or paper form with borrower certifications
  • Loans $150,000 to $2 million will have simplified documentation requirements
  1. Audit plan for borrowers who, together with their affiliates, obtained $2 million or more
  • Policies and procedures for conducting audits and reviews
  • Metrics used to determine which loans will be audited

Changes exclusive to the second round of PPP loans

  1. Additional PPP loan funds available
  • $267.5 billion in PPP loan funds available
  • Additional $13.5 billion for Economic Injury Disaster Loan funds
  1. Eligible businesses looking to apply for more funding
  • Size of business is now limited to 300 employees (down from 500 in round one)
  • Business must have experienced gross receipts decline by at least 30% for any quarter in 2020 compared to that same quarter in 2019
  1. Calculating the maximum loan amount
  • Two and a half months’ worth of the average payroll for the last twelve months through date of application or 2019
  • Loan cannot exceed $2 million
  • There will be limitations for businesses with multiple locations (aggregated total not to exceed $2 million)
  • Loans for affiliated borrowers can not exceed $10 million
  1. Set aside for small entities
  • $25 billion of the total allotment is earmarked for businesses with 10 employees or less as of February 15, 2020
  1. Increase in PPP loan round one amounts
  • Requests can be made for an increase in round one amount if calculating incorrectly due to updated regulations
  1. Inclusion of 501(c)(6) organizations who were previously ineligible in round one
  • Organizations must have 150 employees or less
  • Less than 10% of gross receipts may come from lobbying activities
  • Lobbying activities cannot comprise more than 10% of total activities of the organization

AS ALWAYS, WAGNER & ZWERMAN IS HERE TO ANSWER ALL OF YOUR QUESTIONS AND CONCERNS. WE ARE ALL IN THIS TOGETHER.

STAY SAFE AND HEALTHY

** IF YOU HAVE MISSED ANY PREVIOUS WZ COMMUNICATION IN REGARDS TO COVID-19, PLEASE REFER TO OUR WEBSITE

Best,

WZ Partners

Plan for Business Continuity if Second Wave of COVID Hits

November, 2020

With winter around the corner and the threat of seasonal viruses looming, a second wave of COVID-19 poses a real threat to our health and business operations, according to Johns Hopkins Medicine.

Statistics from the Centers for Disease Control and Prevention (CDC) reveal that the 2019-2020 flu season took 24,000 lives and sickened 39 million individuals. Then when we add the fact that there are children who might not be receiving vaccinations – be it for the measles, whooping cough, and others – due to COVID-19, the risk for infections multiply.

Based on these factors, there’s a real possibility of a second wave of COVID-19 and other seasonal illnesses impacting business operations for the worse.

As the State of Washington’s Department of Commerce explains, there are many things that businesses can do to prepare for a second wave of the coronavirus. Here are a few recommendations that can be applied and modified, depending on the type of business.

The Washington State Department of Commerce recommends businesses use their digital presence, such as email, a website, blog or social media, to inform and connect with customers. There’s a balance that companies need to find between marketing and selling products or services and not sounding tone-deaf to the situation that COVID-19 has created.

For example, by creating a brief blog or social media post, companies can acknowledge that COVID-19 is a stressful time for everyone, but the company will still be there for them. Explaining how they’re taking care of their employees (social distancing, letting employees work from home and/or take time off for themselves or family members) and how they’re welcoming customers in-store or making house calls (with masks, social distancing, using technology when appropriate), it can create empathy and promote a sense of goodwill.

Another way to leverage digital communication channels is to create a standalone email address to funnel visitor and customer questions regarding COVID-19 concerns.

Planning on how to deal with food that won’t be used is an important step for organizations that deal with mass quantities of food. For schools, colleges, or universities that were open but have closed or others that want to make contingencies to close, the Environmental Protection Agency (EPA) recommends a few different avenues to make good use of food that would otherwise spoil. Organizations should make plans to donate to food banks or food rescue organizations; and there is also the EPA’s Excess Food Opportunities Map, which can direct unused food to composting options for businesses.

Another way for companies to prepare for a second wave of COVID-19, as the State of Washington’s Department of Commerce points out, is to ensure all documents are up-to-date and accessible via hard copy and electronically. Example documents include minutes and resolutions from official business meetings, tax records – especially any recently filed quarterly estimate payments – and lists of vendors. Companies also should ensure that digital files are encrypted, protected by passwords and that the cloud provider has a firewall, security scanning, and continually addresses vulnerabilities.

Business owners should have contingency plans to deal with supply chain issues. One way to mitigate supplier issues, according to McKinsey & Company, is to negotiate with existing suppliers that have cash or liquidity issues.

By offering essential suppliers with loans, often at attractive interest rates compared to lenders, as a way to keep suppliers in business, businesses may be able to negotiate for exclusive or high priority production agreements. This can be done while looking for alternate suppliers, either domestically or in other parts of the world.

While the second wave of COVID-19 is a real possibility, taking steps to prepare for any surge in cases will help companies increase their chances to make it out of the pandemic.

Sources

https://www.hopkinsmedicine.org/health/conditions-and-diseases/coronavirus/first-and-second-waves-of-coronavirus

https://www.epa.gov/coronavirus/recycling-and-sustainable-management-food-during-coronavirus-covid-19-public-health#02

A ‘Between Waves’ COVID-19 Planner for Small Businesses

https://www.mckinsey.com/business-functions/operations/our-insights/coronavirus-and-technology-supply-chains-how-to-restart-and-rebuild

https://www.epa.gov/coronavirus/recycling-and-sustainable-management-food-during-coronavirus-covid-19-public-health

The “Setting Every Community Up for Retirement Enhancement” Act of 2019 (SECURE Act) (12/2019)

The “Setting Every Community Up for Retirement Enhancement” Act (SECURE Act), part of the Further Consolidated Appropriations Act, 2020 (H.R. 1865, P.L. 116-94), was enacted on December 20, 2019. The SECURE Act expands opportunities for individuals to increase their savings, and makes administrative simplifications to the retirement system.

Setting Every Community Up for Retirement Enhancement Act (SECURE Act)

 

Key provisions affecting individuals:

Repeal of the maximum age for traditional IRA contributions.

Before 2020, traditional IRA contributions were not allowed once the individual attained age 70½. Starting in 2020, the new rules allow an individual of any age to make contributions to a traditional IRA, as long as the individual has compensation, which generally means earned income from wages or self-employment.

Required minimum distribution age raised from 70½ to 72.

Before 2020, retirement plan participants and IRA owners were generally required to begin taking required minimum distributions, or RMDs, from their plan by April 1 of the year following the year they reached age 70½. The age 70½ requirement was first applied in the retirement plan context in the early 1960s and, until recently, had not been adjusted to account for increases in life expectancy.

For distributions required to be made after Dec. 31, 2019, for individuals who attain age 70½ after that date, the age at which individuals must begin taking distributions from their retirement plan or IRA is increased from 70½ to 72.

Partial elimination of stretch IRAs.

For deaths of plan participants or IRA owners occurring before 2020, beneficiaries (both spousal and nonspousal) were generally allowed to stretch out the tax-deferral advantages of the plan or IRA by taking distributions over the beneficiary s life or life expectancy (in the IRA context, this is sometimes referred to as a “stretch IRA”).

However, for deaths of plan participants or IRA owners beginning in 2020 (later for some participants in collectively bargained plans and governmental plans), distributions to most nonspouse beneficiaries are generally required to be distributed within ten years following the plan participant s or IRA owner s death. So, for those beneficiaries, the “stretching” strategy is no longer allowed.

Exceptions to the 10-year rule are allowed for distributions to (1) the surviving spouse of the plan participant or IRA owner; (2) a child of the plan participant or IRA owner who has not reached majority; (3) a chronically ill individual; and (4) any other individual who is not more than ten years younger than the plan participant or IRA owner. Those beneficiaries who qualify under this exception may generally still take their distributions over their life expectancy (as allowed under the rules in effect for deaths occurring before 2020).

Expansion of Section 529 education savings plans to cover registered apprenticeships and distributions to repay certain student loans.

A Section 529 education savings plan (a 529 plan, also known as a qualified tuition program) is a tax-exempt program established and maintained by a state, or one or more eligible educational institutions (public or private). Any person can make nondeductible cash contributions to a 529 plan on behalf of a designated beneficiary. The earnings on the contributions accumulate tax-free. Distributions from a 529 plan are excludable up to the amount of the designated beneficiary’s qualified higher education expenses.

Before 2019, qualified higher education expenses didn’t include the expenses of registered apprenticeships or student loan repayments.

But for distributions made after Dec. 31, 2018 (the effective date is retroactive), tax-free distributions from 529 plans can be used to pay for fees, books, supplies, and equipment required for the designated beneficiary s participation in an apprenticeship program. In addition, tax-free distributions (up to $10,000) are allowed to pay the principal or interest on a qualified education loan of the designated beneficiary, or a sibling of the designated beneficiary.

Kiddie tax changes for gold star children and others.

In 2017, Congress passed the Tax Cuts and Jobs Act (TCJA, P.L. 115-97), which made changes to the so-called “kiddie tax,” which is a tax on the unearned income of certain children. Before enactment of the TCJA, the net unearned income of a child was taxed at the parents’ tax rates if the parents’ tax rates were higher than the tax rates of the child.

Under the TCJA, for tax years beginning after Dec. 31, 2017, the taxable income of a child attributable to net unearned income is taxed according to the brackets applicable to trusts and estates. Children to whom the kiddie tax rules apply and who have net unearned income also have a reduced exemption amount under the alternative minimum tax (AMT) rules.

There had been concern that the TCJA changes unfairly increased the tax on certain children, including those who were receiving government payments (i.e., unearned income) because they were survivors of deceased military personnel (“gold star children”), first responders, and emergency medical workers.

The new rules enacted on Dec. 20, 2019, repeal the kiddie tax measures that were added by the TCJA. So, starting in 2020 (with the option to start retroactively in 2018 and/or 2019), the unearned income of children is taxed under the pre-TCJA rules, and not at trust/estate rates. And starting retroactively in 2018, the new rules also eliminate the reduced AMT exemption amount for children to whom the kiddie tax rules apply and who have net unearned income.

Penalty-free retirement plan withdrawals for expenses related to the birth or adoption of a child.

Generally, a distribution from a retirement plan must be included in income. And, unless an exception applies (for example, distributions in case of financial hardship), a distribution before the age of 59-1/2 is subject to a 10% early withdrawal penalty on the amount includible in income.

Starting in 2020, plan distributions (up to $5,000) that are used to pay for expenses related to the birth or adoption of a child are penalty-free. That $5,000 amount applies on an individual basis, so for a married couple, each spouse may receive a penalty-free distribution up to $5,000 for a qualified birth or adoption.

Taxable non-tuition fellowship and stipend payments are treated as compensation for IRA purposes.

Before 2020, stipends and non-tuition fellowship payments received by graduate and postdoctoral students were not treated as compensation for IRA contribution purposes, and so could not be used as the basis for making IRA contributions.

Starting in 2020, the new rules remove that obstacle by permitting taxable non-tuition fellowship and stipend payments to be treated as compensation for IRA contribution purposes. This change will enable these students to begin saving for retirement without delay.

Tax-exempt difficulty-of-care payments are treated as compensation for determining retirement contribution limits.

Many home healthcare workers do not have taxable income because their only compensation comes from “difficulty-of-care” payments that are exempt from taxation. Because those workers do not have taxable income, they were not able to save for retirement in a qualified retirement plan or IRA.

For IRA contributions made after Dec. 20, 2019 (and retroactively starting in 2016 for contributions made to certain qualified retirement plans), the new rules allow home healthcare workers to contribute to a retirement plan or IRA by providing that tax-exempt difficulty-of-care payments are treated as compensation for purposes of calculating the contribution limits to certain qualified plans and IRAs.

Key provisions affecting employer-provided retirement plans:

Unrelated employers are more easily allowed to band together to create a single retirement plan.

A multiple employer plan (MEP) is a single plan maintained by two or more unrelated employers. Starting in 2021, the new rules reduce the barriers to creating and maintaining MEPs, which will help increase opportunities for small employers to band together to obtain more favorable investment results, while allowing for more efficient and less expensive management services.

New small employer automatic plan enrollment credit.

Automatic enrollment is shown to increase employee participation and higher retirement savings. Starting in 2020, the new rules create a new tax credit of up to $500 per year to employers to defray start-up costs for new 401(k) plans and SIMPLE IRA plans that include automatic enrollment. The credit is in addition to an existing plan start-up credit, and is available for three years. The new credit is also available to employers who convert an existing plan to a plan with an automatic enrollment design.

Increase credit for small employer pension plan start-up costs.

The new rules increase the credit for plan start-up costs to make it more affordable for small businesses to set up retirement plans. Starting in 2020, the credit is increased by changing the calculation of the flat dollar amount limit on the credit to the greater of (1) $500, or (2) the lesser of: (a) $250 multiplied by the number of nonhighly compensated employees of the eligible employer who are eligible to participate in the plan, or (b) $5,000. The credit applies for up to three years.

Expand retirement savings by increasing the auto enrollment safe harbor cap.

An annual nondiscrimination test called the actual deferral percentage (ADP) test applies to elective deferrals under a 401(k) plan. The ADP test is deemed to be satisfied if a 401(k) plan includes certain minimum matching or non-elective contributions under either of two safe harbor plan designs and meets certain other requirements. One of the safe harbor plans is an automatic enrollment safe harbor plan.

Starting in 2020, the new rules increase the cap on the default rate under an automatic enrollment safe harbor plan from 10% to 15%, but only for years after the participant’s first deemed election year. For the participant’s first deemed election year, the cap on the default rate is 10%.

Allow long-term part-time employees to participate in 401(k) plans.

Currently, employers are generally allowed to exclude part-time employees (i.e., employees who work less than 1,000 hours per year) when providing certain types of retirement plans—like a 401(k) plan—to their employees. As women are more likely than men to work part-time, these rules can be especially harmful for women in preparing for retirement.

However, starting in 2021, the new rules will require most employers maintaining a 401(k) plan to have a dual eligibility requirement under which an employee must complete either a one-year-of-service requirement (with the 1,000-hour rule), or three consecutive years of service where the employee completes at least 500 hours of service per year. For employees who are eligible solely by reason of the new 500-hour rule, the employer will be allowed to exclude those employees from testing under the nondiscrimination and coverage rules, and from the application of the top-heavy rules.

Loosen notice requirements and amendment timing rules to facilitate adoption of nonelective contribution 401(k) safe harbor plans.

The actual deferral percentage nondiscrimination test is deemed to be satisfied if a 401(k) plan includes certain minimum matching or nonelective contributions under either of two plan designs (referred to as a “401(k) safe harbor plan”), as well as certain required rights and features, and satisfies a notice requirement. Under one type of 401(k) safe harbor plan, the plan either (1) satisfies a matching contribution requirement, or (2) provides for a nonelective contribution to a defined contribution plan of at least 3% of an employee’s compensation on behalf of each nonhighly compensated employee who is eligible to participate in the plan.

Starting in 2020, the new rules change the nonelective contribution 401(k) safe harbor to provide greater flexibility, improve employee protection, and facilitate plan adoption. The new rules eliminate the safe harbor notice requirement, but maintain the requirement to allow employees to make or change an election at least once per year. The rules also permit amendments to nonelective status at any time before the 30th day before the close of the plan year. Amendments after that time are allowed if the amendment provides (1) a nonelective contribution of at least 4% of compensation (rather than at least 3%) for all eligible employees for that plan year, and (2) the plan is amended no later than the last day for distributing excess contributions for the plan year (i.e., by the close of following plan year).

Expansion of portability of lifetime income options.

Starting in 2020, the new rules permit certain retirement plans to make a direct trustee-to-trustee transfer to another employer-sponsored retirement plan, or IRA, of a lifetime income investment or distributions of a lifetime income investment in the form of a qualified plan distribution annuity, if a lifetime income investment is no longer authorized to be held as an investment option under the plan. This change permits participants to preserve their lifetime income investments and avoid surrender charges and fees.

Qualified employer plans barred from making loans through credit cards and similar arrangements.

After Dec. 20, 2019, plan loans may no longer be distributed through credit cards or similar arrangements. This change is intended to ensure that plan loans are not used for routine or small purchases, thereby helping to preserve retirement savings.

Nondiscrimination rules modified to protect older, longer service participants in closed plans.

Starting in 2020, the nondiscrimination rules as they pertain to closed pension plans (i.e., plans closed to new entrants) are being changed to permit existing participants to continue to accrue benefits. The modification will protect the benefits for older, longer-service employees as they near retirement.

Plans adopted by filing due date for year may be treated as in effect as of close of year.

Starting in 2020, employers can elect to treat qualified retirement plans adopted after the close of a tax year, but before the due date (including extensions) of the tax return, as having been adopted as of the last day of the year. The additional time to establish a plan provides flexibility for employers who are considering adopting a plan, and the opportunity for employees to receive contributions for that earlier year.

New annual disclosures required for estimated lifetime income streams.

The new rules (starting at a to-be-determined future date) will require that plan participants’ benefit statements include a lifetime income disclosure at least once during any 12-month period. The disclosure will have to illustrate the monthly payments the participant would receive if the total account balance were used to provide lifetime income streams, including a qualified joint and survivor annuity for the participant and the participant s surviving spouse and a single life annuity.

Fiduciary safe harbor added for selection of annuity providers.

When a plan sponsor selects an annuity provider for the plan, the sponsor is considered a plan “fiduciary,” which generally means that the sponsor must discharge his or her duties with respect to the plan solely in the interests of plan participants and beneficiaries (this is known as the “prudence requirement”).

Starting on Dec. 20, 2019 (the date the SECURE Act was signed into law), fiduciaries have an optional safe harbor to satisfy the prudence requirement in their selection of an insurer for a guaranteed retirement income contract, and are protected from liability for any losses that may result to participants or beneficiaries due to an insurer’s future inability to satisfy its financial obligations under the terms of the contract. Removing ambiguity about the applicable fiduciary standard eliminates a roadblock to offering lifetime income benefit options under a plan.

Increased penalties for failure-to-file retirement plan returns.

Starting in 2020, the new rules modify the failure-to-file penalties for retirement plan returns.

The penalty for failing to file a Form 5500 (for annual plan reporting) is changed to $250 per day, not to exceed $150,000.

A taxpayer’s failure to file a registration statement incurs a penalty of $10 per participant per day, not to exceed $50,000.

The failure to file a required notification of change results in a penalty of $10 per day, not to exceed $10,000.

The failure to provide a required withholding notice results in a penalty of $100 for each failure, not to exceed $50,000 for all failures during any calendar year.

 

Note From The Partners

 

Dear WZ Clients and Friends,

As the end of the year is fast approaching, we should consider any last minute strategies that might help reduce your individual or business 2019 tax bill. Last year was the first year to be impacted by the Tax Cuts and Jobs Act of 2017 (TCJA). While there was no significant new legislation in 2019 affecting individual taxes, situations do change from year to year, thus requiring a fresh look at how to approach year-end tax planning. There are some strategies we can implement to benefit you and we should discuss before December 31.

For individuals:

  1. Bunching deductions into 2019
  2. Deduct Medical Expenses and Health Savings Accounts
  3. Mortgage interest deductions
  4. Home office expenses
  5. Revised kiddie tax rules
  6. Education-related deductions and credits
  7. Charitable contribution deductions
  8. Rental real estate
  9. Retirement planning
  10. Reevaluating your stock portfolio
  11. Substantial increases in deductions or non-taxable income could result in AMT exposure
  12. Planning for 3.8% net investment income tax
  13. Additional Medicare tax
  14. Timing income and deductions
  15. Foreign bank account reporting

For Businesses:

  1. Section 179 Expensing and Bonus Depreciation Deductions
  2. Qualified Improvement Property Glitch Remains Unfixed
  3. Qualified Business Income Deduction
  4. Rental Real Estate
  5. Vehicle-Related Deductions and Substantiation Requirements
  6. Fringe Benefit/Retirement Programs
  7. Increasing Basis in Pass-thru Entities
  8. Electing the De Minimis Safe Harbor
  9. S Corporation Shareholder Salaries

Please contact us with any questions or concerns so we can discuss ways to reduce your taxable income and tax liability for 2019.

From all three partners at Wagner & Zwerman, thank you for your patronage. Your continued support and suggestions throughout the years are a vital part of our growth. And for that, we are most grateful.

We look forward to serving you for many years to come.

Best,

Andrew Zwerman, Vincent Preto, John Antinore and the Wagner & Zwerman Team

3 Big Tax Issues to Look Out for in Your Estate Plan

Tax and Financial News August, 2019

3 Big Tax Issues to Look Out for in Your Estate Plan

3 Tax Issues Estate Plan

There are three big tax issues that can derail an otherwise well-executed estate plan. These include Family Limited Partnerships, Revocable Trust Swap Powers and Trust Situs. Below we explore the pitfalls with each issue.

Fixing FLPs

Family Limited Partnerships (FLP) are often created to hold investments or business assets in order to leverage a valuation discount, exert control and provide asset protection.

First, to understand the valuation discount, take the example in which an FLP owned a family business valued at $10 million. A straight 25 percent interest in this business would therefore be worth $2.5 million. However, due to valuation discounts for a non-controlling interest that would not be readily available for sale or able to control liquidation, the 25 percent might actually be valued at $1.7 million for estate tax purposes.

Second, FLPs also could be set up to allow the founder or parents to control operations even after a majority of their interest is given away.

Lastly, FLPs can protect assets. If an interest owner is sued, the claimant might not be able to exercise their claim, especially if they sued a minority interest holder. Instead, they could be limited to receiving a charging order. A charging order limits the claimant to only the distributions that interest holder would be entitled to and protects the other owners.

FLPs that ignore legal upkeep and technical legal formalities can jeopardize these the protection benefits by causing the FLP entity to be disregarded. Common errors include co-mingling personal and entity assets and ignoring the legal requirements to have current signed governing instruments.

On the valuation front, many FLPs were set up to provide valuation discounts at a time of significantly lower estate tax exemptions. Not only is this unnecessary, but the valuation discount can actually hinder the heirs by passing along a lower asset value when the basis is stepped up at death.

Swap Powers

Traditionally, irrevocable trusts are by definition trusts that cannot be altered (hence the name irrevocable). Uses include carving out assets from an estate to better protect the assets and provide tax savings.

Irrevocable trusts are often structured as “grantor” trusts for income tax benefit purposes. Grantor trusts allow the grantor to report the trust income on their individual 1040, effectively having the grantor pay the tax burden and bypass the trust. This strategy can reduce the grantor’s estate.

There are numerous ways to create grantor trust status. Including swap powers is the most common. Swap powers allow the swapping of personal assets for trust assets of equivalent value. The problem with swap powers is that little attention is paid to them and they aren’t exercised in the right circumstances, leading to adverse income tax consequences.

It’s best to review the value of trust assets annually or even more often if the grantor is in poor health so you know when to exercise the swap powers. It’s also a good idea to involve your estate planning attorney and CPA if you are going to exercise the swap powers. This will ensure the swap is handled according to the rules of the trust document and properly reported on your tax returns.

Trust Situs Selection

Trust situs is the state where your trust is based. It determines which state law administers and rules the trust. Frequently, the trust situs is simply set up in the same state where the trust creator is a resident.

While simple, using a home state as the trust situs is not always best. A person’s home state may not provide the best protections or state taxation. The way around this is to “rent” a different trust jurisdiction. Doing so can allow you to lower or altogether avoid state income taxes. You’ll have to factor in the costs to do so as there will be more legal fees and trustee fees since an institution will need to hold the trust to create the state nexus. Overall, you can often come out ahead.

Conclusion

The best thing you can do is to review your current or potential trust with your estate planning attorney and CPA. This way you can stay on top of both the formalities and mechanisms in place to maximize the protections and benefits of the trust.

 

§

 

General Business News August, 2019

Understanding and Applying Accounting Reports and Ratios

Understanding Accounting Ratios

When it comes to tracking incoming sales and outgoing expenses, there are many ways businesses can keep up with their invoices and implement strategies to reduce the time they spend on unpaid sales.

Accounts Receivable Turnover Ratio

Simply defined, the accounts receivable turnover ratio is a way of showing what percent of a company’s receivables or invoices are paid by clients. 

The U.S. Small Business Administration explains this ratio is determined by “dividing average accounts receivable by sales.” Determining average accounts receivable is done by adding the beginning and ending figures — be it a month, quarter or year, then dividing by 2. Determining the sales figure is calculated by taking the total sales still on credit and deducting any allowances or returns from the gross sales figure.    

If the beginning and ending accounts receivables for a 12-month period were $20,000 and $30,000, the average accounts receivable would be $50,000/2 or $25,000. If the gross sales were $200,000 for the 12-month period and there were $20,000 in returns, it would leave $180,000/$25,000 or an accounts receivable turnover ratio of 7.2

Accounts Payable Turnover Ratio

The payable turnover ratio is determined by taking all purchases from suppliers and dividing the supplier purchase figure by the mean accounts payable figure. The average accounts payable figure is calculated by adding the starting accounts payable figure and the ending accounts payable figure, normally at the beginning and ending of a period, such as 12 months. From there, the summed up accounts payable figure is divided by 2 to get an average.  

A business made yearly purchases on credit for about $250,000 from suppliers and had returns to those suppliers for about $20,000. If at the beginning of the 12-month period accounts payable were $11,000, then at the end of the period the accounts payable balance was $26,000, the total figures would equal $37,000.

From that point, there would be $230,000 in net yearly purchases on credit for the business and an average of $18,500 for the period’s accounts payable. Dividing the $230,000 by $18,500 equals 12.43. Therefore, the business’ accounts payable turned over about 12.5 times during the period. As the SBA explains, the higher the ratio, the more dependent companies are on accounts payable to acquire inventory.   

Accounts Payable Aging Report

When it comes to defining an accounts payable aging report, businesses can use this tool to determine and organize outstanding accounts payable to vendors or suppliers and how much each is owed. While it can be broken into discreet time frames, such as net-14 or net-60 or net-90, depending on how the supplier and business decided on payment terms, commonly accepted time frames established are: up to 30 days; 31 to 60 days; and so on.

This report is used to organize which supplier invoices are due and when. One important consideration to note is if the report assumes that all invoices are due within 30 days. If there’s special arrangements or terms from important suppliers, it could need adjusting as determined by individual supplier payment terms.  

By using an accounts payable aging report, businesses will see when they need to pay their bills on time and what percentage are being paid on time (or not). It will help businesses see if they’re paying late fees by organizing invoices. Businesses can also identify if there’s a need to negotiate with suppliers for reduced payments for early payments or for extended time to pay invoices if cash flow is an issue. 

Accounts Receivable Aging Report

Similar to an accounts payable aging report, an accounts receivable aging report helps businesses track outstanding invoices owed by clients. It also contains the client name, the time when payment is due and how late, if at all, client invoices are for issued invoices.

These reports help businesses determine the likelihood of debt becoming bad, and if unpaid invoices need to be sent to collections or written off. It can also measure in short and long terms how clients have made timely payments on their invoices. This can help businesses determine if they should reduce existing credit terms to their clients or to make an offer to discount what’s owed in order to get an otherwise uncollectible invoice paid.

Whether a company owes money or expects to be paid for a product or service, with the proper accounting tools, there’s a way to keep track of all inflows and outflows.

 

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Tip of the Month August, 2019

Pass It On: Accounting Tips to Share With Kids

Accounting Tips to Share With Kids, Accounting children

It’s never too early to helps kids understand accounting – the concepts of earning and spending. Here are a few ways to teach your little ones about how money works and even have a little fun.

Play Money Games

One way to explain the principles is by playing games like Monopoly and The Game of Life. However, if you want to be more homegrown and less commercial, bake some cookies, bag and price them, and turn your kitchen into a store. You might even get a toy cash register and calculators to make the whole experience more authentic. Then record the earnings, expenses and profits. This will really give children a “taste” of accounting!

Create a Family Budget

When sharing this activity with your kids, you don’t have to include every single expense – just those that they can easily understand, such as mortgage or rent, electricity, gas, phone, groceries and so on. Then, ask them to write up a budget of their own and include their income and expenditures for an allotted amount of time, perhaps a week. This way, you can demonstrate the importance of tracking money and explain that this is a common way that businesses and families deal with their finances.

Teach Them About Checking Accounts

Even though checks are being used less and less these days, a check register is still a good way to show kids how to reconcile expenses. First, you can let them watch you write a check, then explain how to record the check in the register. Then, get some generic deposit slips from your bank and demonstrate how deposits and withdrawals work. Finally, tell them that these transactions will be sent to them each month in a statement – you might even show them one you have to help them visualize the concept.

Explain Debits and Credits

Grab a blank sheet of paper and write a large T on it. Above the left side of the bar, write “Income: Money In” and above the right side of the bar, write “Expenses: Money Out.” Point out the difference between the two sides. If your child has an allowance, a way of earning money by doing chores or if they have a summer job, then ask them to pretend that they’re going to spend some of their money on things they’d like, such as games or candy. Have them record the amounts of earned income in the left column. Then ask them to imagine spending the money on the things they want and have them record those expenses in the right column. Then subtract the expenses from the income. This is quite effective because it helps kids see the money going in and out of an account. When they get a feel for how this works, they might be a little less interested in spending every cent they earn.

There are many other tools you can use to teach your children how money works, but these are a few good ones to get you started. As many parents can attest, helping kids comprehend how to manage money is one of the best lessons you can teach them.

Why Some People Are Afraid of the Hobby Loss Rules

Tax and Financial News July

Why Some People Are Afraid of the Hobby Loss Rules

Hobby Loss Rules IRS

Many tax advisors are very cautious when it comes to claiming hobby losses – and some would argue overly so. This conservative view stems from the impression that the taxpayer usually loses when challenged by the IRS. While technically true that the odds aren’t in your favor of winning a challenge, the overall risk often works out in the taxpayer’s favor over the long run. Below we’ll look at why tax advisors should start from the assumption of taking the losses.

Always a Loser

Taxpayers usually lose hobby loss cases. Typically, the odds are around 3-to-1 in favor of the IRS. So, on the surface it seems like the smart bet is to assume you’ll lose, but there are reasons not to plan based on this fact. First, this statistic only represents cases that are decided by the court. Taxpayers are usually pretty stubborn and most cases are settled in much more favorable circumstances to the taxpayer.

Second, the “losers” are often winners in the long run.

Why Losers are Really Winners

When a taxpayer loses a hobby loss case, they usually face a deficiency and an accuracy penalty of 20 percent.  The key issue here is how long before the loss is challenged?

Let’s take a pretend case as an example. Assume we have a taxpayer with tax losses of $60,000 per year, a 35 percent tax rate and they are audited for three years and lose. This results in a $63,000 deficiency ($60,000 x 35 percent x 3 years), plus an accuracy penalty of $12,600 (20 percent of the $63k). Had they not claimed the deduction, they would have paid the $63,000 in taxes anyway, so this isn’t really a loss; only the accuracy penalty is.

This doesn’t sound so great, does it? Why would someone take 3-to-1 odds in a scenario like this? Let’s think for a minute; what if the taxpayer had been taking the losses for 10 years?  Those first seven years that were never audited allowed the taxpayer to take the deduction. In this case we have $21,000 x 7 years = $147,000 in deductions that the taxpayer would have missed if they played it conservatively. Next, our hypothetical taxpayer would still be up more than $134,000 over the long term ($147k, less the accuracy penalty).

This all of course assumes the taxpayer is sincere in his or her efforts to make money and is not playing the “audit lottery,” which is of course unethical.

Honest Motives

Tax courts look to see if a taxpayer is genuinely and honestly engaged in the activity for profit. Objective honesty is the standard, and it doesn’t matter how slight the odds of turning a profit are. The IRS isn’t looking to judge the taxpayer’s business acumen, but their objective instead. You’ll need to truly be trying to make money with the activity or you’re doomed to lose.

Conclusion

In the end, if a taxpayer has an honest objective to make a profit through a hobby, claiming the losses is typically in their interest. While they are likely to lose if challenged, they are guaranteed to lose if they don’t take the losses themselves. Finally, even if they lose certain years under audit, they are likely to come out ahead in the long run. So, if you’re truly trying to make money in a venture that could be seen as a hobby, it might not pay to be conservative.

 

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General Business News July

How to Define and Calculate a Break-Even Analysis

Break-Even Analysis

According to data from a U.S. Small Business Administration Office of Advocacy report from August 2018, businesses have varied longevity.

Nearly 80 percent (79.8 percent) of business startups in 2016 lasted until 2017. Between 2005 and 2017, the SBA mentions that 78.6 of new businesses lasted 12 months. Similarly, nearly 50 percent lasted at least five years.  

While there are many reasons why a company goes out of business – one is profitability. Knowing when the business is breaking even and will start making a profit can be accomplished with a break-even analysis.

Defining a Break-Even Analysis

As the SBA explains, a Break-Even Analysis is a useful way to measure the level of sales necessary to determine how many products or the amount of services that must be sold in order to pay for fixed and variable costs, otherwise known as “breaking even.” It refers to the time at which cost and revenue reach an equilibrium.

In order to get the Break-Even Quantity (BEQ), as the SBA uses, businesses must take their fixed costs per month and divide this figure by what’s left over after subtracting the variable cost per unit from the price per unit – or the product’s selling price.

Fixed Costs

These types of costs can include things such as rent or lease payments, property taxes, insurance, interest payments or monthly machine rental costs.

Variable Costs

In contrast to fixed costs, such as taxes or interest payments for the next month or year, business owners also must deal with variable costs. Utilities and raw material expenses are two examples of variable costs.

Looking at electricity costs, the amount and price of kilowatts used per month will vary based on the amount and length of usage of lights, climate control equipment, production runs and the rate of kilowatts from the supplier.

Looking at raw materials, such as oil or precious metals, these costs can decrease or increase frequently due to tariff or commodity fluctuations.

Sales Price Per Unit and Further Considerations

When it comes to how much an item is ultimately sold for, there are different considerations for different product sales. If a company is selling a product for $100 on the retail level, and the business’ fixed costs are $4,000 and there’s $50 in variable costs, the Break-Even Quantity can be calculated like this:

$4,000 / ($100 – $50) = $4,000 / ($50) = 80 products (to break even)

If those products are surfboards priced at $100 each, then sales of the 81st surfboard and onward would represent profits for the company. It’s also important to see how changing either fixed costs or variable costs can make a difference in the break-even point.

Reducing Fixed Costs

If a business owner refinances a loan to a lower, fixed interest rate, or reduces a salary for the next 12 months, the overall fixed costs will go down. Here’s an example with a lower fixed cost for the same scenario:

$3,500 / $50 = 70 products (to break even)

Reducing Variable Costs

If a business owner searches for another supplier, such as one that’s not subject to import tariff costs that get passed on to consumers, variable costs can be reduced for the same scenario. In this example, the variable cost is reduced to $45.

($100 – $45) = 55

$4,000 / $55 = 73 products (to break even)

While each business has its unique costs and industry conditions, a break-even analysis can help business owners determine future moves.

 

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Financial Planning News July

Financial Tips for Recent College Graduates

Financial Tips for Recent College Graduates

Members of the college graduating class of 2017 owed an average of close to $30,000 each in student loan debt. Imagine starting out adult life with that kind of debt load?

The prevalence of this type of mounting debt for a 21- or 22-year-old is unprecedented in U.S. history – and all the more reason why young adults need sound financial advice. Financial advisors might not necessarily market to this demographic; instead, waiting until they’re older and have assets worth their while. However, if today’s young adults don’t get off on the right financial footing with regard to managing debt, saving, budgeting and investing for the future, there won’t be that many in need of financial advice once they hit middle-age.

The following are a few tidbits of advice to help recent college grads develop successful money management habits.

Be Patient

Interestingly, many college graduates know they are in over their heads and welcome financial advice; in fact, they’re hungry for it. A recent survey found that the No. 1 goal for 94 percent of Millennials is to become debt free. Unfortunately, tackling thousands of dollars in debt while earning an entry-level salary is a difficult task. The first rule of thumb is to be patient.

It takes time to pay off that much debt. The best advice is not to develop expensive habits, such as buying an expensive car, one with poor gas mileage or a make that is known for expensive repairs. Don’t get into the gourmet coffee habit. Bring your lunch to work. These are common habits among young adults with little discretionary income, but the hard part might be refraining from this type of spending once they start earning a higher salary.

Any wage increases or monetary windfalls should be directed to paying off debt and establishing an emergency savings fund to cover three to six months of living expenses – just in case they get laid off or encounter a large, unexpected expense.

Be Disciplined

Just as it takes time and patience to pay off a large debt, it also takes time and patience for invested money to compound. Once debts are paid off, extra income should be devoted to a regular, automated savings plan, such as a tax-deferred retirement plan with a company match.

Here’s an example of the reward:

  • Madison starts investing $10,000 a year at age 25 for 15 years, for a grand total of $150,000. At age 40, she stops and never returns to that investment habit.
  • Aidan starts investing $10,000 a year at age 35 and continues that habit for 30 years – twice as long as Madison. His total contribution also is twice that of Madison’s, at $300,000.

By age 65, Aidan’s investment grows to $790,582. While Madison invested only half as much as Aidan, by age 65 her investment grows to $998,975 – $208,392 more than him (assuming a 6 percent average annual return). That’s what the power of compound interest can do for a new college graduate who starts saving young.

Be Diligent

Compound interest works both ways, so it’s important that young adults don’t miss or make late payments on student loans or other debt. Such bad habits lead to negative information being reported on their credit report, resulting in a low credit score that can cause them to be turned down for loans or charged higher interest rates. It can even mean losing out on a job opportunity, as some employers check out candidate credit scores.

Above all else, young college graduates need to make debt payments on time, build a credit history and protect their credit score.

Ideally, no matter how large debt payments are or how little a new college grad earns, a young adult should get in the habit of saving the same amount of money each month. Even if it’s just $20 a paycheck; it’s not the amount that matters – it’s the habit.

The best way to accomplish this is to live below your means. When you get a salary increase, increase your monthly savings amount. The easiest way to entrench a savings habit is to “keep living like you’re still a college student.”

When Saving for Retirement in Taxable Account Is a Good Idea

Tax and Financial News June 2019

When Saving for Retirement in Taxable Account Is a Good Idea

When Saving for Retirement in Taxable Account Is a Good Idea, 401k, 403b

Most people associate saving for retirement with tax deferred or non-taxable accounts: 401(k)s, 403(b)s, Traditional IRAs, Roth IRAs, etc. The tax benefits of these types of retirement accounts give individuals advantages over simply investing in a regular taxable brokerage account.  

Savings for retirement in a standard taxable account can also have its place – and the option shouldn’t be ignored. In this article, we’ll look at a handful of reasons why doing so might just be the best option.

Your employer doesn’t offer 401(k), 403(b) or similar type plan

Some employers, especially very small ones, don’t offer retirement plan options to their employees due to the cost or administrative burden. Others have restrictions on participation, such as waiting periods (sometimes up to one year) or cut out part-time employees.

In this situation, your options may be limited to opening an IRA, but contributions are limited ($6,000 or $7,000 per year, depending if under or over 50) so an IRA alone may not allow you to save enough to meet your goals. Savings in a taxable account can help bridge the gap between what the IRA allows and your target needs.

You have maxed out and still want to save more

Even if you have access to a tax advantaged savings plan, contributions are limited. For example, 401(k) plans limit contributions to $19,000 ($25,000 if age 50 or older) in 2019. Depending on your income or projected needs, this might not be enough.

Consider for example that many experts say a target savings rate of approximately 15 percent is needed to give a retiree sufficient income. Someone earning $200,000 a year should be putting away $30,000 per year using the 15 percent rule, considerably more than what a 401(k) permits.

Accessibility to your investments

Retirement accounts come with strings attached to those tax benefits. Taking money out of a 401(k), 403(b) or IRA early can trigger steep costs in terms of penalties and taxes.

If you’re someone who values options and access to long-term investment savings, a taxable account provides flexibility. You can add and remove money without limits, penalties or restrictions. You’ll also have more control in retirement as there will be no required minimum distributions later in life.

Benefits for your heirs

Passing on the balance of a 401(k), 403(b) or Traditional IRA to an heir puts him or her in a taxable situation. Typically, someone who inherits an IRA will have to pay taxes on the distributions as if they were ordinary income, just like the retiree during their lifetime. Generally speaking, someone who inherits a taxable account receives a step-up in basis (at the date of death or other depending on elections).

Let’s look at a simple example to understand this better. Assume you bought 1,000 shares of Apple for $20 ($20,000) and when you passed away it was worth $200 per share ($200,000). If you purchased this in your 401(k), then your heir would have to pay tax on the entire $200,000 as ordinary income as it’s distributed. If this investment was held in a taxable account, however, they could receive a step-up in basis. This means that while your basis was the $20,000 you originally paid, your heir’s basis would step up to the $200,000 value. This means he could sell the $200,000 worth of stock and pay zero in taxes.

Conclusion

As you can see, tax deferred and advantaged accounts offer many perks that make them excellent vehicles for saving; however, taxable accounts are often needed as well. The need to save beyond contribution limits or desire to pass on an inheritance in a tax-advantaged manner can behoove looking beyond 401(k)s and IRAs.

 

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Financial Planning June 2019

Social Security: News, Tips and Trends

Social Security: News, Tips and Trends

There are a number of threats that both retirees and pre-retirees are facing right now when it comes to drawing Social Security benefits. For example, there’s a new scam this year. Seniors are being solicited by callers who claim to be with the Social Security Administration (SSA). The caller says he regrets to inform that the elderly person’s Social Security payments have been suspended. The caller says it’s either because the beneficiary has been involved in a crime or there has been suspicious activity related to their benefit. Here’s the interesting part: the caller then requests that the senior repay a certain amount of his benefit to Social Security by gift card. The scammer is then able to use this money quickly with no paper trail.

If that sounds absurd, consider that over the span of just two months Social Security beneficiaries collectively lost upward of $6.7 million by falling prey to this a new, highly effective scam. Even if an elderly person is suspicious or knows the call is fraudulent, he may acquiesce anyway for peace of mind. Seniors who rely on Social Security as their primary source of income are of no mind to mess around when that income is threatened. If you or anyone you know is in this situation, be aware that the SSA does not make direct phone calls, does not threaten to stop paying benefits, and certainly does not ask to be refunded payments by gift card.

From a longer-term perspective, Social Security payments could be threatened by – ironically enough – the current administration’s strict immigration policy. The former chairman of the Federal Reserve, Alan Greenspan, recently noted that in 2010 alone, unauthorized foreign workers paid about $12 billion in tax revenues that went directly into Social Security’s coffers. Because many immigrants pay FICA taxes whether they are documented or not, this revenue source has been a mainstay to our Social Security, Medicare and Medicaid programs for as long as they’ve been in effect. Based on 2016 government data, even before the recent immigration policies were implemented, Pew Research reports that the number of unauthorized immigrants had dropped to its lowest level (10.7 million) since its peak (12.2 million) in 2007.

The unfortunate consequence of fewer immigrants is that payroll taxes may have to increase and/or Social Security benefits reduced in coming years. One economist projected that if we continue down this current path of highly restrictive immigration policies, Social Security benefits would need to be cut by nearly 25 percent.

To make the most of their benefits, many retirement planners recommend that retirees wait as long as possible to begin drawing Social Security income. The longer you wait, the higher the benefit. However, those in poor health or diagnosed with a terminal illness (only two to four years to live) may be better advised to begin taking benefits. However, there is a caveat to this strategy that should be considered. Delaying benefits not only ensures a higher payout for the primary beneficiary, but also for the surviving spouse. When the primary breadwinner takes Social Security before full retirement age, his monthly benefits are permanently reduced – that is, the amount his widow will be stuck with for the rest of her life. If you don’t actually need the income, it might be worth delaying benefits to increase the amount a dependent spouse receives upon your death.

Another little known fact about Social Security is that you can have a do-over. If you retire, start drawing benefits and then decide to go back to work, you can actually stop taking the payout and let it continue to accrue until you’re ready again. Of course, there are restrictions in place. First, you must be under age 70. Second, you have to alert SSA of this plan by submitting the appropriate form within 12 months of applying for benefits. And third, you must pay back all the money you’ve received to date. The good news is that you can reapply later and enjoy a higher benefit as if you were drawing it for the first time.

 

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Tip of the Month June 2019

Best Road Trips on a Budget

Best Road Trips on a Budget

Summer is here and it’s time for getting out of town. However, you don’t want to set off on the open road without a plan. While there are an endless number of places to visit across the United States, here are a few road trips that are filled with natural parks, mountains and beaches, all of which are notably affordable, if not free.

From New York City to Charleston, South Carolina

First stop, Cape May, NJ, where you can hit Cape May Beach for some sun, then walk/bird watch for free at The Meadows. Next stop, Ocean City, MD, where there’s a 3-mile-long boardwalk with lots of arcades and fast-food joints (read: kid-friendly and affordable).

After that, head toward the fabled Outer Banks of North Carolina. Lots of adorable towns and free public beaches pepper this area, but you can’t miss Cape Hatteras. Should you want a break from the sand, you can take in all the critters at the Pea Island National Wildlife Refuge, then climb to the top of the Cape Hatteras Lighthouse – both free. Last stop, iconic Charleston, where the eye-popping architecture is complimentary, as is visiting The Battery, biking the Palmetto Trail and swooning over the miraculous Angel Oak Tree.

From Chicago, IL, to Santa Monica, CA, via Route 66

Starting in Grant Park, the official beginning of Route 66, you can walk and hike across lots of gorgeous tree-filled greens, bike along Lake Michigan, snap pics by Buckingham Fountain and check out sculptures and installations, all gratis.

Head next to Carthage, MO, to the 66 Drive-In, where you can watch one movie and get the second one for free. After this, make your way to bucket list-worthy national parks, including Yosemite, Grand Canyon and Petrified Forest National Parks. While they do charge entrance fees, they’re minimal and the jaw-dropping nature is priceless. Last stop, beachy Santa Monica, where the waves, the pier, the mountains – everything is waiting to greet you.

From Houston, TX, to Portland, OR

First stop is Dallas, where you can see the JFK Memorial and the Calatrava Bridge, both without charge. Next stop, Amarillo, where a must-see is the Cadillac Ranch, rows of old Caddies nose-down in the ground. Free and a great photo op.

Head to Denver, where Rocky Mountain National Park is just a heartbeat away. Stop by Red Rocks Park in the city for awesome natural formations (no charge), followed by the Denver Museum, which is free every first Saturday of the month.

After this, head to Boise, ID, where you can hike/walk in the Boise River Green Belt, hoof it around the Idaho State Capital Building, then get yourself back into nature at the Camel’s Back Park. Last stop, Portland, where a few free things of note include visiting Mill Ends Park, the world’s smallest park. The Vacuum Museum, (yes, you read that right), where you’ll see vintage vacuums. And then, of course, what you came here for, the nature stuff: Forest Park, where you can check out the Witch’s Castle. The Urban Waterfall at Ira Keller Forecourt Fountain Park and of course, Columbia River Gorge, for crazy gorgeous waterfalls and all kinds of outdoor fun.

These three road trips are just a sliver of the many routes that offer freebies along the way. But remember: head for the great outdoors. More often than not, you’ll see some memorable sites that won’t cost an arm and a leg.

HSA Accounts and Their Incredible Long-term Benefits

Tax and Financial News May 2019

HSA Accounts and Their Incredible Long-term Benefits

Pretty much everyone has heard about 401(k) plans, but beyond these – Health Savings Accounts (HSAs) also can be great retirement vehicles. HSAs are tax-advantaged savings accounts for those with high-deductible health plans (HDHPs). The idea is that since those with HDHPs generally have lower premiums but higher out-of-pocket expenses, they need a way to save for such expenses.

Few eligible taxpayers take full advantage of HSAs. The Employee Benefit Research Institute estimated a few years ago that out of the approximately 17 million people eligible, only about 13.8 million opened HSA accounts, leaving almost 20 percent without one. The survey also revealed that very few people maximize their contributions – and nearly everyone takes current distributions, leaving balances far lower than they could be otherwise.

Why Does This Matter?

The HSA’s tax advantages make it a great way to save for retirement and in some ways it is even better than using a retirement account. For example, you can make tax-deductible contributions either via payroll deductions or on your own; the account grows tax-free on interest, dividends and capital gains; and withdrawals for qualified medical expenses are tax-free. In contrast to a 401(k) or IRA, HSAs do not require withdrawals at a certain age, allowing the account to remain untouched and growing tax-free for the rest of your life. Now let’s look at some considerations to fully take advantage of HSAs.

Max Your Contributions Before It’s Too Late

HSA contributions are only tax-deductible before a certain age; once you qualify for Medicare this tax advantage ends. Once you are eligible for Medicare you technically no longer must have an HDHP and therefore aren’t allowed to make deductible contributions anymore. Once you reach 55 years old, catch-up contributions of an additional $1,000 per year are allowed for each the taxpayer and spouse, if married.

Look at Your HSA as an Investment Tool

While HSAs weren’t intended to be investment accounts, treating it like one is the best way to benefit from the tax advantages. Get in the mindset of treating your HSA contributions as “untouchable,” and pay your medical expenses with money from outside the account.

Aside from maximizing what you put in and taking out as little as possible, you need to invest HSA funds wisely. Consider an investment strategy similar to what you use for other retirement assets, within the context of your entire portfolio.

Also remember that while your employer might make it easy to open your HSA account with a certain administrator or even set you up with a default provider, you ultimately have say over where to keep your HSA money. An HSA is more like an IRA than a 401(k)s in this respect, so look around for a plan that offers high-quality, low-cost investment options.

Maximize Your HSA Assets in Retirement

By waiting until retirement to use your HSA funds, you enable those assets to grow tax free with the potential to use the funds tax free as well. You’ll still will be able to use the funds tax free only for qualified medical expenses, but what qualifies as a medical expense is expansive.

For example, in addition to the typical items, tax-free HSA withdrawals can be used to pay for  portions of the premiums for certain long-term care insurance policies, in-home nursing care, retirement community fees that include certain types of care, and nursing home fees.

Another thing to note is that since there are no required minimum distributions, you’ll never need to worry about being forced to withdraw the money.

Conclusion

HSAs are largely overlooked as investment tools even though their unique tax advantages make them excellent choices. Obviously, you don’t want to hoard HSA funds at the expense of ignoring your health care, but if you have the means to fund your HSA and pay your medical expenses before retirement with other money, you can reap the benefits in years to come. Lastly, keep in mind that these strategies are all based on current federal tax law. While most states follow federal tax law regarding HSAs, not all do.

 

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General Business News May 2019

How to Budget for Estimated Tax Payments

According to a March 22 Internal Revenue Service News Release, 2018 federal tax filers might be able to have any penalties for an underpayment of estimated tax removed. This could be possible if they’ve paid at least 80 percent of their 2018 tax obligations through either quarterly estimated payments, income tax withholdings or a combination of both during the 2018 calendar year.

This new level was established after the 90 percent payment requirement was reduced to 85 percent of estimated tax obligations on Jan. 16. With paying estimated taxes a legal requirement for many taxpayers, let’s examine how this works for individuals and business entities.

Individuals and Organizations Responsible to Pay Estimated Taxes

For the most part, corporations are required to pay estimated taxes if they project owing taxes of at least $500 as part of their tax return filing.

When it comes to other entities, including sole proprietors, partners, shareholders of S-corps and individuals, estimated tax payments are required if there is an expected tax obligation of at least $1,000 with their yearly filing.

Obligations for Estimated Payments

As income is earned, so must taxes be paid through either estimated or withholding tax remittances to the IRS.

Estimated tax payments might be necessary for workers who have not had enough withholdings taken from a variety of earnings. It can come from salaries or pension payments, or from interest or dividend payments, alimony, capital gains or sweepstakes winnings. Self-employed individuals are required to pay estimated taxes to help cover any applicable alternative minimum tax obligations, along with self-employment taxes and income taxes.

If there’s not enough tax paid via withholding and/or estimated taxes, or if they are paid late, there could be a penalty assessed. This is regardless of if a refund is due the taxpayer when a tax return is filed.

When Estimated Tax Payments May Not Be Required

For those who receive compensation in the form of wages or a salary, employers can work with their employees to withhold the appropriate amount to lessen the chances of estimated tax obligations. Other scenarios that can provide an exemption of paying estimated taxes are when no taxes were due the previous year (or not legally required to file a return), and the applicant was a resident or American citizen for the entire year and the past tax year consisted of 12 months.

Making Estimated Tax Payments

Required four times every calendar year, estimated taxes can be paid weekly, bi-weekly or monthly. It doesn’t matter the frequency of payments, as long as the estimated taxes are remitted by the due date.

While there are different requirements for workers in certain industries, such as fishermen and farmers, for those filers who fail to pay what’s required of their taxes, be it estimated or withholding, the IRS can assess a penalty. However, if the taxpayer meets one of the following criteria – based on the lowest figure – they can expect to avoid a penalty:

  • Has a tax obligation of less than $1,000 (after factoring in credits and withholdings)
  • Has already satisfied 90 percent of tax obligations for the existing tax year
  • Has already paid the same amount in taxes owed the previous tax year

However, with the recent IRS news release, for 2018 at least, the 80 percent threshold has been established. Other ways filers might be able to get amnesty from this penalty include if the person becomes deceased; retires once they turn 62 years old; or develops a disability within the tax year when the estimated tax payments are due. The under-payment of estimated taxes must be “due to reasonable cause” and not purposely trying to avoid payment. 

Determining and paying estimated taxes is not a one-size-fits-all requirement by the IRS, but it’s a legal requirement for millions of Americans and those living and working in the United States.

 

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What’s New in Technology May 2019

What To Expect From 10G Data Speed

When it comes to smartphones, speed and connectivity is generally referenced by generation. For example, the industry is currently focused on creating 5G networks.

However, in the cable industry the G refers to gigabits. Over the past two years, this industry has expanded the availability of 1 gigabit broadband Internet from 4 percent to 80 percent of U.S. households. Now that the foundation for gigabit expansion exists, the cable industry is looking to increase speeds by tenfold and make it accessible to more homes and businesses globally.

The new focus is on 10G technology, which also is expected to reduce transfer latency, provide greater security and enhance the ability to host a wide range of immersive skills and applications – even those that haven’t been conceived yet. Internet service providers (ISP) are currently preparing the infrastructure necessary to enable a seamless and secure 10G online experience for computers.

A Bit Versus a Byte

What might not be clear to consumers is the difference between a gigabit and gigabyte, also known as a bit and a byte. A bit refers to the rate of transferring data: 1 gigabit transmits 1 billion bits per second. Even 1 gigabit represents extremely fast bandwidth that, for user purposes, means no log time when streaming video, downloading music or playing video and virtual reality games,

For example, 1 gigabit can download an entire two-hour HD movie in less than 60 seconds. It also offers the bandwidth to enable multiple downloads simultaneously and allow multiple users to surf and interact on the internet at the same time on various devices.

In contrast, a byte is the measurement for storage available on a computing device. The data itself is measured in bytes, and bytes are delivered in single bits at a time. For reference, 1 gigabyte of memory holds about 312 MP3 songs or 535 e-books.

Therefore, to maximize both storage and speed, it’s important to have a high capacity to store data (bytes) and impressive speed (bits) so that vast amounts of data can transmit quickly.

Small Business Benefits

While larger companies have dozens to hundreds of employees with a wide range of job responsibilities, many small businesses tend to be focused on a just a few. And those few can be significantly impacted by a lagging network. For this reason, deploying faster computer speed can make a big difference in the time it takes to search data, retrieve records, run point-of-sale systems and transmit financial transactions. Even the most basic mom and pop shops will benefit from this enhancement of speed and storage capacity.

For professional services firms, where time is indeed measured by money, 10G has the potential to revolutionize their business model by reducing expenses, enhancing the customer service experience and maximizing staff productivity.

10G, which has been described as the next great leap for broadband, is not an insular achievement. It is part of a larger cable broadband technology platform designed to process exponentially more data from more devices at 10 times the speed of what we expect today. Combined with enhanced reliability and security features, 10G is projected to launch a myriad of new immersive technologies and digital experiences that will revolutionize the way businesses are run.