One of the many items being promoted by the Federal government is employee savings, especially in qualified retirement accounts. To this end, the IRS has created a new website specifically to aid small business owners in choosing retirement plans.
Go to http://www.retirementplans.irs.gov/ to see the new website tool.
We strongly recommend soliciting additional council when setting up such plans. Should you have any questions about good resources, please do not hesitate to ask.
As you may have noticed, the new Form 990 has been redesigned. There are more required disclosures intended to provide greater transparency to readers of the 990.
As these changes have greatly increased the level of work required to complete the 990, the Internal Revenue Service has launched a new case study and video program titled “The New Form 990: Getting Started” to help illustrate key points and answer important questions about the 990. Click this link to go the IRS’s program: Video Series
We hope this helps you understand the new regulations, and helps to make the preparation for your 990 less stressful. If we may be of service in this process, please contact us.
I recently heard that Christmas decorations are out and available at Costco; it seems a bit early for those considering we just celebrated Labor Day.
What it isn’t too early for is Tax Planning! Now that we’ve entered the final quarter of 2009, it is time to consider performing some tax planning. Once we enter 2010, there is very little that can be done to change tax liabilities. Now is the time to accomplish this. But what is tax planning and is it worth it?
WHAT IS TAX PLANNING
Tax planning may accomplish one or two major things:
1.) Decrease tax liability owed (or increase refund) now or in future year by identifying deductions or adjustments to income.
2.) Allows you time to prepare for tax liabilities and possibly eliminate tax penalties.
For scenario 1, decreasing tax liability, let’s examine one planning item common to most, property taxes. If you live in San Diego County, you probably received your property tax bill in the mail last week. Normally, one will pay the first half before December 10th and the second half before April 10th. Property taxes are itemized deductions. One may choose to pay both halves before December 31st and increase that deduction in the current year versus a portion next year if one expects to be in a higher tax bracket this year versus next.
Another example is for people adversely affected by downturn in the economy, converting a traditional IRA to a Roth IRA may make sense. One must pay income tax on the amount converted, but if a person is in the 10 or 15% tax bracket and expects to be in a higher bracket in future years or during retirement, it may be wise to pay the tax consequences now at the lower tax rate than in the future at a higher rate.
As far as allowing time to prepare for tax liabilities or eliminating tax penalties, the last date to mail the IRS and California Franchise Tax Board estimated payments for 2009 taxes is January 15th, 2010. Through tax planning we would likely be able to determine how much should be paid by that date to avoid penalties. If one has under accrued tax withholdings, meeting now will give an individual approximately three to six months to pull together necessary funds to pay a tax liability versus the few weeks one would have if the tax liability was discovered when the return was prepared.
For many of our clients, the biggest tax planning that goes on is with their businesses. Business decisions are probably the single largest determinant of personal tax consequences. Timing of capital purchases, payments of invoices, contributions to benefit plans all affect the success of the business and taxes that must be paid.
IS IT WORTH IT?
Most of tax planning is pulling together documents necessary to prepare your returns. This will need to be done next year anyway, so you might as well do it now. What is the cost/benefit of tax planning? Well, there is a value in simply being informed regarding what your tax situation will be like come filing season, and there is a certain peace-of-mind factor; both of which are difficult to quantify. To quantify it though, finding a mere $400 in ways to save or defer taxes will likely cover the cost of an appointment with your CPA.
October and November are the months to arm yourself with the necessary information to mitigate unwanted tax consequences. Two great places to start are:
1.) Pull out last year’s tax returns and see what was beneficial or detrimental to your tax bill
2.) Set up a time to speak with your CPA
We look forward to discussing ways you may be more successful through tax planning.
My father opened the newspaper and saw the lead story in the business section reporting a company made a bad deal and lost $10 Million. This was note-worthy to him because the CEO of that company was his brother.
My dad felt horribly for his brother and was certain he would be fired. He, very tentatively, called him that night to offer his condolences. To his surprise, his brother was fine; he wasn’t happy about the loss but told my dad the following:
“I am paid to make the best decision with the information available at the time. Based on the information I had, I’d make the same decision again.”
Knowingly or not, we all make decision based on the information available at the time, and we do it constantly.
Where we differ is how much information we have when we make decisions.
Every year, we prepare tax returns for clients after we piece together the bookkeeping for the year. If we are putting together the bookkeeping to simply prepare a tax return the person is making his or her decisions without key information.
Are you making your decisions with all the necessary information? Maybe you promised yourself that you would keep up on your bookkeeping but business has picked up and you are finding you don’t have time. Maybe you get a gentle reminder that you’re behind every time you open your wallet and see those crumpled receipts. To make the best decisions, you need valuable information.
Valuable information is:
We provide monthly bookkeeping for a number of clients as well as explanations of what those numbers mean. We also frequently discuss what we expect to occur with the business, how that will impact cash and sometimes tax consequences.
Other than the ability to make better decisions, here are two additional benefits:
1.) You’re going to pay for bookkeeping with your time or money eventually, might as well do it monthly so you can use that information for more than tax preparation.
2.) By recording transactions monthly, you’ll likely get more tax deductions because you’ll record a higher percentage of your legitimate business deductions.
Hopefully point 1 is fairly self explanatory, for point 2, let me give you an example:
Every $1 of expenses the business owner misses costs them $0.45 in additional taxes.
Is it likely with bookkeeping done at the end of the year expenses are missed? Absolutely! What about trips to Cost-Co where groceries and maybe some office supplies are purchased? What about that business meal where the receipt was left in your car and cleaned out at the car wash? What about the automobile expenses lost simply due to the fact no mileage records are periodically entered and are too much trouble on April 14th to calculate?
Without timely, accurate and understandable bookkeeping and accounting, business owners make decisions without all of the information handicapping the likelihood of business success. We would enjoy meeting with you to discuss how we may provide you this affordable and high value service.
Are you like me, regularly riffling through junk mail on the latest “get rich” scheme? Is your email account spam filter working overtime? I recently received an email from a reputable website that I’ve done stock research through claiming “secrets to 50% yearly gains;” I read it, it was a solicitation.
I find it frustrating to get these messages, NOT because they are anymore difficult to throw out or delete than the other junk, but because I (like you I suspect) know I need to SOMETHING with my money and don’t want to screw up!
I went to a seminar featuring Steve Forbes, former US Presidential candidate and Editor of Forbes Magazine, Phil Town, stock market millionaire and author of Rule #1, one of the best selling investment books on Amazon.com in 2006, and Peter Lowe, successful sales person and motivational speaker. The three spoke back-to-back-to-back. Mr. Forbes spoke on many things, but extolled the excellence of putting a percentage of every paycheck into mutual funds. Mr. Town told how he was taught how to get rich in the stock market and pitched us on the formula he apparently used, which involved buying individual stocks and jumping in and out of the market based on trend research (not to mention other techniques, like selling options). Finally, Mr. Lowe spoke of how money doubles in any market but how that doubling is reduced by taxes; without actually telling the audience how, he recommended people invest in tax-free or tax-deferred investments (I assumed he meant investments like 401ks and Real-estate 1031 exchanges). The moral of the story is that at one seminar, in the course of a few hours, I was encouraged to implement three very different investment strategies. What is one to do?
To compound the problem, especially in California, we are surrounded by people with their heads held low in shame because they didn’t buy an “over-priced” house in 2003 or 2004 but rather stayed in the rental market, building up a larger down payment, waiting for the housing market bubble to burst, only to watch prices increase. If they only would have entered the market during 2003, and sold in 2005, they would have realized tremendous gains. Instead, they became cautionary tales for renters, and they are cautionary tales for anyone and everyone who is so conservative with one’s money that average, large or extraordinary gains are missed. At least those people are watching the market. Many people don’t “have the time” to research investment strategies, so their money sits in their 401k plans or the banks waiting to be properly utilized.
What are we to do? Do we go buy real estate on the ever-growing foreclosure market? Do we buy penny stocks or tax-free bonds? Do we bury our heads in the sand and hope social security survives until we retire? NO! We each make a plan; a plan that takes into account retirement, college funds and braces, and all the major purchases in between.
Steps:
Those are the basic steps, now comes the art. We need to figure out what are the investment vehicles that fit our interests, lifestyle and abilities. I know of people who enjoy working on old homes; for these, real estate maybe a great investment. Others are involved with publicly traded companies, enjoy staying abreast of the market and may be best suited, at least partially, to invest in individual stocks. For the majority though, choosing an investment advisor will likely be the best solution. From there, understanding how money is taxed and choosing vehicles that mitigate tax consequences is key.
Ending the frustration starts with a plan.
We are happy to sit down and help you through these steps.
My wife, Betsy, and I recently had our first child. During Betsy’s pregnancy, and certainly now that we have an infant, we tended to go out less than we used to. We like to entertain and our friends, none of whom have children, and they are great about coming over for dinner rather than going out; so we are not shut-ins. Still though, we spend more nights at home as a family than we did a year ago. Now, on the weekends, we frequently rent a movie; okay, we rent two movies. Three or four weekends a month, on my way home from work, I would be on my cell phone speaking to Betsy, standing in front of the new releases in Blockbuster. We would hold heavy negotiations over the phone, each making concessions and compromises. In the end I’d be leaving Blockbuster with a romantic comedy and an action flick, with just over $8 less in my wallet. We did this for a few months until I realized we were paying somewhere between $25 and $35 per month for movies. Since we probably were not going to go out much more, I switched to NetFlix and now spend $14.99 per month on unlimited movies per month. We can have 2 movies out at a time and don’t even need to drive to the store. I can also log onto our account and move all of my romantic comedy picks ahead of my wife’s action movies in the queue. Without making any changes to our habit, we saved between $10 and $17 per month.
My premise for saving $100 per month is this: things that take planning are harder to do and less likely to be done than those things that take no planning. If you want to save money, find expenses you can eliminate without thinking or planning.
I read an article about a guy who spent $150 per month on food (about 1/3 of what I spend on food for myself). He never ate out; he clipped coupons throughout the week and went grocery shopping every Sunday morning right when the sales started. He would plan his “menu” based on what he had in his house and what was on sale. Great! More power to him, but I am not going to spend time clipping coupons and researching what meals I can make with what ingredients are on sale. I don’t have time, and I do not want to spend my relaxation time analyzing if Ralph’s is selling Top Romin for less than Von’s this week.
In most cases, I am not going to spend my extra time planning to save money. What I can do is identify expenses in my life to eliminate that take no time. By canceling a subscription, not stopping for coffee in the morning, or changing how we rent movies, I do not have to plan. It requires no time out of my schedule; it actually saves time and saves money. If you clip coupons and like the “challenge” of only buying what is on sale at your grocery store, great, but if you are still trying to save money, try some of these tips.
1. Go out for dinner one less time per month. If you are like Betsy and me, this will save between $25 and $50 per month easily. If you are looking just to get out, try going to a book signing, frozen yogurt, or a power walk down the beach.
2. Do you eat out for lunch? This is a recommendation that cuts against my “no planning” somewhat, but don’t eat out for lunch! Eating lunch takes no time, but if you eat out, you need to drive to and from lunch. If there is no good business reason to eat out (if there is, your company probably covers it anyways), brown bag it. You can buy a box of Hot Pockets for about $1 per sandwich. If your company has free drinks (water at least), you could be spending $1 to $2 on lunch versus $5 every day. If you are willing to make your own lunch the night before (or has a spouse that really likes you and wants you to eat healthy) your sandwich and fruit or cookie could easily be under $3 and be very satisfying. By not eating out, you should save at least $2 per day. If you were eating out 3 times a week that is about $25 per month.
3. I rarely eat out. Still, it seems like it is beneficial to eat out, strictly for business reasons, one or two times per week. Have you seen what restaurants charge for beverages these days? It is close to $2 for a coffee or a soda now! These beverages cost next to nothing if you buy them from the grocery store or drink the free supply at work. If you have a good reason to eat out, drink water when you go and save the coffee and soda for work or home. This could save you anywhere from $8 to $20 per month.
4. Are you addicted? Can you not wake up without your Tall, Non-Fat Latte? Make your Starbucks coffee a Friday treat rather than a daily habit. Do you stop at the drive through on the way to work? Stop! Save your time and money and go straight to work, do not pass Go, do not waste $3. Coffee is free at work (yes, it does not taste great, but tell all of your co-workers to “suggest” to management that better coffee would improve employee moral and see what happens. In the meantime, look forward to Friday). Assuming you had Starbucks 3 times per week and were eliminating 2 of them, you’ll save $25 to $30 per month.
5. Subscriptions. Does your copy of the LA Times on the front porch make you the most informed person on your block? I am sure your knowledge of the Lakers is very impressive but are you reading the entire thing every day? Maybe you are, but guess what, the content is online for free. The only thing I cannot find on the LA Times website is the comics, which are online elsewhere. Stop paying $20 per month for the newspaper when you can read the news on any number of websites. The only exception is the Wall Street Journal; the online subscription is $39 per YEAR (last time I checked). Buy it if you cannot get your company to pay for a paper subscription on your behalf. Evaluate all of your magazine and related subscriptions as well. This will save you at least $20 per month.
6. For you single guys, how frequently do you go to the bars? My bar hoping days are well behind me, but the idea of paying $4 per beer makes my neck-hair stand on end. I went on a business trip to beautiful Orlando, Florida with a co-worker who happened to be a “single guy.” We went out after work, and he was the life of the party. He looked great, paid for drinks, was funny and the ladies loved him. His total bar tab for the night, $200 plus. Single people, if you want to meet people, join a gym or enroll at a night course at community college and try to eliminate just one big spending night per month, I don’t even want to guess at your savings.
7. Okay, I play adult, rec league softball, so I drink a beer every now and again, and frequently after a game, my teammates end up at my place (apparently they don’t like paying $4 per beer either). I love it; I am with my family and my friends and in my home. If I buy a 6-pack, it costs me $6 per week or $30 per month. I could probably help my own work out schedule and weight goals if I purchased one less 6-pack per beer and there would still be enough for the team (some guys even buy beer and bring it for the other guys). Why don’t we set the grocery beer (substitute you favorite drink here) budget at $20 per month? This saves $10 per month.
8. I hate to write this, it makes me shudder even to suggest it. I do not want to take away any joy from your life and understand this may be like saying good-bye to a friend. It is extreme, next I’ll suggest moving to a compound in Idaho, but bear with me. Cancel your cable subscription. Okay, grab a brown paper bag and stop hyperventilating. I wrote at the beginning of these suggestions that the premise would be things that actually take no planning, save you time and money. If you cancel your cable and go with an antenna, you can still be a couch potato. You’ll grow to love the characters on free TV as much as those on cable over time. I know, there is no Sports Center on free TV, but I’ve been ESPN free for three years and my body still produces testosterone. For most cable subscribers, canceling cable will save you at least $50 per month.
We would all like more money in our account at the end of the month. These are a few tips that will hopefully help. If you want other ideas, look at your last 3 bank statements. Look for some names of stores, shops, cafes or restaurants that reoccur. Do they all provide products or services you cannot live without? Is the money you are spending at these locations necessary? Ponder these things and find ways that you can cancel those expenses. It will likely be easier than getting your grocery bill down to $150 per month.
